Hedger response to multiple grades of delivery on futures markets
✍ Scribed by Da-Hsiang Donald Lien
- Publisher
- John Wiley and Sons
- Year
- 1988
- Tongue
- English
- Weight
- 951 KB
- Volume
- 8
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
The approach adopted here is similar to that of Anderson and Danthine (1981). However, they consider the effects of adding a new futures contract for Z while we consider the case of incorporating Z as an alternative deliverable grade into the existing contract. In other words, they compare the case of a single 'From Appendix 1, we have the variance-covariance matrix for ( P , I, P , , , P, I), in the case of the broadbasecontract. Since thematrixispositivedefinite, its determinant m u s t b e positive, whichimpliesy(1 + 4 ) > 2p2: Also, y(1 + e + p ) > 2P2. Upon applying these properties to equations (3)-( 5), obvious1y.f. = S z > 0, V < 0, and fi < 0.