Dissertation Information for Kenneth Ronald French NAME: - Kenneth Ronald French
DEGREE:
- Ph.D.
DISCIPLINE:
- Finance
SCHOOL:
- University of Rochester (USA) (1983)
ADVISORS: - None COMMITTEE MEMBERS: - None
MPACT Status: Incomplete - Not_Inspected
Title: THE PRICING OF FUTURES AND FORWARD CONTRACTS
Abstract: This dissertation examines the theoretical and empirical differences between futures and forward prices. Futures and forward contracts are both sales agreements in which delivery and payment are deferred. However, the timing of the payments involved in these contracts is different. The daily gain or loss from holding a futures contract is transferred between the traders at the end of each day, while the profits from holding a forward contract are cumulated until the contract matures.
Despite the differences between these contracts, most economists and commodity traders treat futures contracts as though they are forward contracts. The first question this dissertation addresses is whether futures and forward prices "should" be equal. Arbitrage arguments are used to show that the forward price is a function of the interest rate on a long-term bond, while the futures price is a function of the return from rolling over one-day bonds. These prices will be identically equal only if interest rates are nonstochastic. Both arbitrage and utility-based models are used to explore the theoretical properties of futures and forward prices and to predict the relative movements of these prices.
The empirical evidence in this dissertation examines the accuracy of these predictions for copper and silver contracts. There are small but significant differences between the futures and forward prices for silver over the full 1968-1980 sample period and for copper over the first half of this period, from 1968 through 1973. In general, the price differences are consistent with the theoretical models; the futures prices are usually larger than the forward prices. However, this relation is reversed for copper during the 1968-1973 subperiod. In addition, the models are not helpful in describing intra-sample variations in the futures-forward price differences. The dissertation also tests predictions made by Cox, Ingersoll, and Ross (1981). These predictions are not very helpful in characterizing either the average differences between futures and forward prices or the intra-sample movements in these differences.
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MPACT Scores for Kenneth Ronald French A = 0
C = 1
A+C = 1
T = 0
G = 0
W = 0
TD = 0
TA = 0
calculated 2008-05-26 16:36:57
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