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A note on price futures versus revenue futures contracts
Author(s) -
Lien Donald,
Hennessy David A.
Publication year - 2004
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.10131
Subject(s) - futures contract , normal backwardation , position (finance) , revenue , economics , forward market , forward contract , financial economics , spot contract , price risk , microeconomics , production (economics) , finance
Abstract Here we consider the hedging roles of a price futures contract versus a revenue futures contract. In theabsence of idiosyncratic output risk, the revenue contract almost always dominates the price contract.Idiosyncratic output risk provides conditions under which the price contract should dominate. When productionriskis largely idiosyncratic, a producer with an anticipated long actuals position might combine a long revenuefutures position with a short price futures position. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark24:503–512, 2004