Holmstrom (1982) argues that a principal is required to restrain moral hazard in a team: wasting output in a certain state is required to enforce efficient effort, and the principal is a commitment device for such enforcement. Under competition in commodity and team-formation markets, I extend his model à la Prescott and Townsend (1984) to show that competitive contracts can exploit the futures...

The hypothesis that futures rates are unbiased and efficient predictors of future spot interest rates has been one of the most controversial topics in the empirical literature on market efficiency. The first part of this article concentrates on the question of whether the hypothesis that rates are unbiased holds for the 3-month Euribor futures market. The empirical analysis differs from usually...

In December 2010, the United Nations Food and Agriculture Organization's Food Price Index surpassed its previous peak of June 2008, and prices remained at this level through September 2011. This pattern is creating justified fears of a renewal or intensification of the global food crisis. This paper reviews arguments and evidence to inform debates on how to regulate commodity futures markets in...

a r t i c l e i n f o We analyze firms' entry, production and hedging decisions under imperfect competition. We consider an oligopoly industry producing a homogeneous output in which risk-averse firms face an entry cost upon entering the industry, and then compete in Cournot with one another. Each firm faces uncertainty in the input cost when making production decision, and has access to the fu...

This paper solves the optimal futures hedging problem in several simple continuous-time settings, and examines the resultant equilibrium in one case. Spot and futures prices are described by vector diffusion processes. A hedge is a vector stochastic process specifying a futures position in each futures market. Hedging profits and losses are marked to market in an interest-bearing (or interest-p...

This paper is a study of continuously resettled contingent claims prices in a stochastic economy. As special cases, the relationship between futures and forward prices is analyzed, and a preference-free expression is derived for these prices, as well as the price of a continuously resettled futures option, whose formula differs from Black’s futures option pricing formula due to the effects of m...

We prove that for a large class of widely used term structure models there is a simple theoretical upper bound for value of LIBOR futures prices. When this bound is compared to observed futures prices, one nevertheless finds that the theoretical bound is sometimes violated by market prices. The main consequence of this observation is that virtually all of the important fixed income models have ...

This paper develops a dynamic, equilibrium model of a futures market to study optimal hedging and the term structure of open interest and futures prices. Investors continuously face spot price risk over time and attempt to hedge this risk using futures. Convenience yield shocks generate basis risk to rolling over near-to-maturity futures. Hence, investors need to simultaneously trade far-from-m...

We theoretically study how commodity financialization affects trading behavior, prices and welfare through affecting risk sharing and price discovery in futures markets. In our model, the general equilibrium feature makes financial traders either provide or demand liquidity in the futures market, depending on the information environment. Consistent with recent evidence, commodity financializati...

Co-integration analysis is applied to historical data (1760±1864) from the worldÕs ®rst well-established futures market, in rice at Dojima (in Osaka, Japan). The market shows a strong seasonal character. The summer market was strongly characterized by producersÕ hedging behavior, and may be called a ``commodity-oriented futures market''. On the other hand, the spring and autumn markets in the m...