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Results tagged with futures
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user 28223
For futures contracts, instruments which compensate the trader for price changes, may be used to hedge price risk (i.e. lock in a price), and are in zero net supply, standardized, exchange-traded, margined, marked-to-market, netted, and centrally-cleared.
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Constructing a long futures hedge
As LocalVolatility has pretty much summed up, it seems that the example assumes that the futures are cash settled. However, it all works out the same way. … Consider the algebra, with a little added explanation
1) Futures position at maturity
$$F_T-F_0=\underbrace{S_T-F_0}_{\text{Futures converge to spot at maturity}}$$
2) Buy in the spot market
$$\underbrace …
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