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Futures market equilibrium with heterogeneity and a spot market at harvest

✍ Scribed by Henri Fouda; Lawrence Kryzanowski; Minh Chau To

Publisher: Elsevier Science
Year: 2001
Tongue: English
Weight: 169 KB
Volume: 25
Category: Article
ISSN: 0165-1889
DOI: 10.1016/s0165-1889(99)00041-x

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✦ Synopsis

This paper studies equilibrium in the futures market for a commodity in a single good economy, which is populated by heterogeneous producers and speculators. The commodity is traded only in the spot market at harvest whereas futures contracts written on the commodity are traded continuously. The model illustrates the role of heterogeneity and non-tradeness in a futures market equilibrium. The results show that the futures price is driven by aggregate wealth, rather than the spot price as in other models and that the futures price process is a simple one which depends on the relative risk process.

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