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A note on constructing spot price indices to approximate futures prices

✍ Scribed by John Cita; Donald Lien

Book ID
102845751
Publisher
John Wiley and Sons
Year
1992
Tongue
English
Weight
710 KB
Volume
12
Category
Article
ISSN
0270-7314

No coin nor oath required. For personal study only.

✦ Synopsis

We acknowledge Mark Castelino, Paul Koch, Mark Powers, and two anonymous referees for helpful comments and constructive suggestions on an earlier version. Of course, we are responsible for any remaining errors.

'More specifically, a broad-based contract is any contract that allows the delivery of multiple grades, or that allows delivery at various places, or both. Besides listing deliverable grades and/or locations, if nonpar delivery is permitted, the contract might also specify a system of premiums/ discounts for settling when delivery is not at par. 2While the broad-based contract offers multiple grade and/or location of delivery, both the broadbased and narrow-based contracts may provide timing choices.

'Using broad-based delivery specifications is not a cure-all for contract delivery defects. Paul, Kahl, and Tomek (1981) recommend that, among other things, "the contract for white potatoes be broadened to permit delivery of all [grades of] white potatoes." Though the delivery specifications were expanded, the contract continued to suffer from delivery defects and eventually disappeared.

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