Understanding Futures Markets

by Quail, Rob; Overdahl, James A.

• ISBN13: 9781405134033
• ISBN10: 1405134038
• Edition: 6th
• Format: Paperback
• Copyright: 2006-04-17
• Publisher: Wiley-Blackwell
• More Book Details
• Purchase Benefits

Summary

Now in its sixth edition, Understanding Futures Markets by Robert Kolb (University of Colorado) and James Overdahl (Chief Economist of the Commodity Futures Trading Commission) provides the most comprehensive coverage of futures markets available. This new edition features updated and enhanced discussions on: event markets, proposition markets, weather futures, and macro futures globalization of futures markets electronic trading platforms and the rise of electronic trading manipulation of futures markets and methods of deterrence The Commodity Futures Modernization Act of 2000 and its effect on market regulation hedging in a corporate environment uses of futures by government entities energy futures products recent fiascos involving energy futures and related derivatives single stock futures products and narrow-based stock index futures accounting and taxation features of futures markets.Clearly written and accessible, this is the authoritative text for students and practitioners alike looking for an in-depth treatment of futures markets.

Author Biography

Robert W. Kolb is a Professor of Finance and Director of the Center for Business and Society at the University of Colorado. He is author and editor of over a dozen books and numerous articles on finance and investments. He devotes his time to writing and research, especially in the areas of futures markets, investments, and bond portfolio management. He was previously a Professor of Finance at the University of Florida, Emory University, and the University of Miami.

James A. Overdahl is Chief Economist at the Commodity Futures Trading Commission in Washington, D.C., and has held senior positions at the Risk Analysis Division at the Office of the Comptroller of the Currency and at the Securities and Exchange Commission. He has been an adjunct professor of business at Georgetown University, Virginia Polytechnic Institute, George Mason University, and Johns Hopkins University. Overdahl is co-author with Robert Kolb of Financial Derivatives 3e.

Table of Contents

Preface	ix
Acknowledgments	xiii
List of Abbreviations	xv
Futures Markets: Introduction	1	(44)
Overview	1	(1)
Origins of Forward Contracting	1	(2)
Forward versus Futures Markets	3	(16)
Exchanges and Types of Futures	19	(5)
Purposes of Futures Markets	24	(3)
Regulation of Futures Markets	27	(5)
Commodity Futures Trading Commission (CFTC)	32	(2)
Recent Regulatory Initiatives	34	(3)
Taxation of Futures Trading	37	(2)
Conclusion	39	(1)
Questions and Problems	39	(1)
Notes	40	(5)
Futures Markets: Refinements	45	(48)
Overview	45	(1)
Margins: a Closer Look	46	(1)
Margins for Combinations of Futures Positions	46	(2)
Intermarket Cross-Margining	48	(1)
The Span Margin System	49	(1)
Value-at-Risk (VAR)	50	(2)
Exchange Competition	52	(4)
Contract Innovation and Contract Success	56	(3)
Brokers, Advisors, and Commodity Fund Managers	59	(5)
The Internationalization of Futures Markets	64	(2)
Electronic Futures Trading	66	(5)
Current Futures Industry Issues	71	(7)
Market Manipulation	78	(8)
Conclusion	86	(1)
Questions and Problems	86	(1)
Notes	87	(6)
Futures Prices	93	(54)
Overview	93	(1)
Reading Futures Prices	94	(6)
The Basis and Spreads	100	(6)
Models of Futures Prices	106	(20)
Futures Prices and Expectations	126	(2)
Futures Prices and Risk Aversion	128	(6)
Characteristics of Futures Prices	134	(7)
Conclusion	141	(2)
Questions and Problems	143	(1)
Notes	144	(3)
Using Futures Markets	147	(44)
Overview	147	(1)
Price Discovery	148	(5)
Speculation	153	(10)
Speculative Profits	163	(6)
Hedging	169	(14)
Conclusion	183	(1)
Questions and Problems	184	(1)
Notes	185	(6)
Agricultural, Energy, and Metallurgical Futures Contracts	191	(48)
Overview	191	(1)
Commodity Characteristics	191	(3)
Full Carry Markets -- Precious Metals	194	(5)
Commodities with Seasonal Production	199	(9)
Commodities with Seasonal Consumption	208	(1)
Commodities with Poor Storability	209	(2)
Bull and Bear Intercommodity Spreads	211	(2)
Inter-Commodity Spread Relationships	213	(8)
Feeder Cattle and Live Cattle	221	(4)
Hedging	225	(8)
Conclusion	233	(1)
Questions and Problems	234	(2)
Notes	236	(3)
A Bond Primer	239	(32)
Overview	239	(1)
Yield Concepts	239	(6)
Bond Price Changes	245	(4)
Convexity	249	(1)
The Term Structure of Interest Rates	250	(4)
Theories of the Term Structure	254	(6)
Bond Portfolio Maturity Strategies	260	(1)
Portfolio Immunization Techniques	261	(6)
Conclusion	267	(1)
Questions and Problems	267	(1)
Notes	268	(3)
Interest Rate Futures: Introduction	271	(40)
Overview	271	(4)
TIEE 28 Futures	275	(3)
Longer-Maturity Interest Rate Futures	278	(10)
Pricing Interest Rate Futures Contracts	288	(9)
Speculating with Interest Rate Futures	297	(4)
Hedging with Interest Rate Futures	301	(7)
Conclusion	308	(1)
Questions and Problems	308	(2)
Notes	310	(1)
Interest Rate Futures: Refinements	311	(58)
Overview	311	(1)
The T-Bond Futures Contract in Detail	311	(11)
Seller's Options in T-Bond Futures	322	(4)
Interest Rate Futures Market Efficiency	326	(7)
Applications: Eurodollar and T-Bill Futures	333	(28)
Long-Term Capital Management	361	(3)
Conclusion	364	(1)
Questions and Problems	365	(2)
Notes	367	(2)
Security Futures Products: Introduction	369	(30)
Overview	369	(1)
The Indexes	370	(4)
Stock Index Futures Contracts	374	(3)
Stock Index Futures Prices	377	(5)
Index Arbitrage and Program Trading	382	(5)
Speculating with Stock Index Futures	387	(3)
Single Stock Futures	390	(5)
Conclusion	395	(1)
Questions and Problems	395	(2)
Notes	397	(2)
Security Futures Products: Refinements	399	(34)
Overview	399	(1)
Stock Index Futures Prices	399	(5)
Real World Program Trading	404	(4)
Hedging with Stock Index Futures	408	(6)
Asset Allocation	414	(2)
Hedge Fund Uses of Stock Index Futures	416	(2)
Portfolio Insurance	418	(3)
Index Futures and Stock Market Volatility	421	(2)
Index Futures and Stock Market Crashes	423	(5)
Conclusion	428	(1)
Questions and Problems	428	(2)
Notes	430	(3)
Foreign Exchange Futures	433	(36)
Overview	433	(1)
Price Quotations	433	(3)
Geographical and Cross-Rate Arbitrage	436	(2)
Forward and Futures Market Characteristics	438	(4)
European Monetary Union	442	(1)
Determinants of Foreign Exchange Rates	442	(2)
Forward and Futures Prices for Foreign Exchange	444	(1)
More Futures Price Parity Relationships	445	(7)
Foreign Exchange Forecasting Accuracy	452	(2)
The Efficiency of Foreign Exchange Futures Markets	454	(1)
Speculation in Foreign Exchange Futures	455	(4)
Hedging with Foreign Exchange Futures	459	(4)
Conclusion	463	(1)
Questions and Problems	464	(3)
Notes	467	(2)
An Options Primer	469	(30)
Overview	469	(1)
Options and Options Markets	470	(3)
Option Pricing	473	(14)
The Option Pricing Model	487	(5)
Speculating with Options	492	(1)
Hedging with Options	493	(2)
Conclusion	495	(1)
Questions and Problems	496	(1)
Notes	496	(3)
Options on Futures	499	(32)
Overview	499	(1)
Characteristics of Options on Physicals and Options on Futures	499	(2)
The Market for Options on Futures	501	(1)
Pricing of Futures Options	501	(9)
Price Relationships Between Options on Physicals and Options on Futures	510	(3)
Summary	513	(1)
Put--Call Parity for Futures Options	514	(2)
Options on Futures and Synthetic Futures	516	(1)
Risk Management with Options on Futures	517	(9)
Summary	526	(1)
Why Futures Options?	526	(2)
Conclusion	528	(1)
Questions and Problems	529	(1)
Notes	530	(1)
Appendix A Core Principles for Futures Exchanges and Clearinghouses	531	(4)
Appendix B Summary of Accounting Rules for Derivative Instruments	535	(6)
Introduction	535	(1)
Instruments Covered by FAS 133	535	(1)
The Basic Accounting Strategy	536	(1)
Designation of a Derivatives Position as a Hedging Instrument	536	(1)
Recognized Types of Hedges	537	(2)
Accounting for Embedded Derivative Instruments	539	(1)
Special Provisions for Not-for-Profit Organizations	539	(1)
Disclosure Requirements	539	(1)
Summary	540	(1)
Appendix C Top 40 Futures Commission Merchants in the United States by Net Capital (6/30/2004)	541	(2)
Appendix D Cumulative Distribution Function for the Standard Normal Random Variable	543	(2)
Bibliography	545	(24)
Index	569