Titre :

Is normal backwardation normal? Valuing financial futures with a local index-rate covariance

Auteur(s) :

Raimbourg, Philippe [Auteur]
Pôle de recherche interdisciplinaire en sciences du management [PRISM Sorbonne]
Université Paris 1 Panthéon-Sorbonne [UP1]
Zimmermann, Paul [Auteur]
Lille économie management - UMR 9221 [LEM]
IÉSEG School Of Management [Puteaux]

Titre de la revue :

European Journal of Operational Research

Pagination :

351-367

Éditeur :

Elsevier

Date de publication :

2022-04

ISSN :

0377-2217

Discipline(s) HAL :

Sciences de l'Homme et Société/Gestion et management

Résumé en anglais : [en]

Revisiting the two-factor valuation of futures contracts, we propose a new pricing model for financial futures and their derivatives. The linkage between the money market funding rate and the underlying asset price is ...
Lire la suite >Revisiting the two-factor valuation of futures contracts, we propose a new pricing model for financial futures and their derivatives. The linkage between the money market funding rate and the underlying asset price is stochastic and state-dependent, in compliance with investors’ arbitrage strategies. The model explicitly captures the impact of interest rate expectations in the marking-to-market feature of futures, as predicted by Cox, Ingersoll, and Ross (1981) theory. The backwardation vs. contango regime of financial futures depends on a new parameter, the contango factor, which paves the way for future empirical studies. Akin to the implied volatility of option contracts, the contango factor provides market participants with a universal gauge of futures contracts’ level of contango, consistent across futures markets and maturities. Our numerical simulations show significant deviations from the traditional cost-of-carry model of futures prices, with price deviations above 1% even for short-term futures contracts.Lire moins >

Langue :

Anglais

Vulgarisation :

Non

Collections :

• Lille Économie Management (LEM) - UMR 9221

Source :

Harvested from HAL