Average Price Futures Contracts: Pricing, Characteristics, and Implications1. (December 2015)

• Record Type: Journal Article
• Authors: Yoo, Jin
• Is Part Of: Asia-Pacific journal of financial studies. Volume 44:Number 6(2015:Dec.)
• Page Start: 849
• Page End: 876
• Publication Date: 2015-12
• Subjects: Average price futures -- Futures pricing -- Expiration day effects -- Price manipulation -- Reference dates; Pacific Area -- Economic conditions -- Periodicals; Finance -- Asia -- Periodicals; Finance -- Pacific Area -- Periodicals; Asia -- Economic conditions -- Periodicals; 332.09505
• DOI: 10.1111/ajfs.12115
• Languages: English
• ISSNs: 2041-9945

Abstract

Abstract: We define and price average index and currency futures, show how they reduce price manipulation, explore their features as financial instruments, and discuss their policy implications. They offer investors protection against price manipulation, effective hedging, and even rational speculation. The study shows that the mean and variance of the price of an arithmetic average futures contract are functions of its reference dates and that it can be flexibly designed to meet diverse hedging needs of investors. With these features, average price futures contracts can serve as a good complement to existing plain vanilla futures.