Hedge performance of SPX index options and S&P 500 futures

Article Abstract:

The hedging performance of stock index options and stock index futures are compared based on three measures, namely, risk-reduction, risk-return and risk-payoff. Stock index futures were found to be superior in monitoring underlying index trends and when hedging performance is evaluated based on risk-reduction. Options were found to be better when risk-return criteria are used, although futures again outperform them whenever option premia, transaction costs and initial margin requirements are integrated in the performance measure.

Evaluation, Stock index futures, Stock index options

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Hedge period length and ex-ante futures hedging effectiveness: the case of foreign-exchange risk cross hedges

Article Abstract:

The effect of direct and cross hedging methodologies, as applied on foreign currency futures risk, was studied. It is commonly assumed that lengthy hedging periods lower spot price risks because it allows for the determination of prices. Prices of commodity futures from 1973 to 1985 were examined to determine hedging periods for foreign currencies. It was concluded that hedgers should lessen hedging periods on foreign exchanges because unstable spot prices and uncertainty in the futures market increases risk.

Economic aspects, Financial futures, Foreign exchange

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An empirical test of the effect of basis risk on cash market positions

Article Abstract:

Economists have generally disregarded the effect of basis risk on cash market positions despite the abundance of literature on the effect of basis risk on futures markets positions. Models with include futures markets basically disregard the presence of basis risk. The hypothesis that basis risk affects the cash market position is tested empirically. Findings indicate that basis risk reduces cash market position. Its impact is so small that no substantial changes result when basis risk is ignored.

Analysis, Risk assessment, Futures market, Futures markets

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