Three Essays on Futures Markets

Essays two and three explore optimal hedging strategies within the mean-variance framework. In essay two, we examine the non-linear relationship between optimal hedge ratios and transaction fees under different market conditions (spot returns). In essay three, we extend the study by Working (1962) and examine the sensitivity of optimal hedging ratios to heterogeneous expectations. The empirical results in both papers indicate that the optimal hedging ratio is an increasing function of the spot return and the correlation between futures and spot prices. The studies identify that the optimal hedge ratios are relatively sensitive to transaction fees and heterogeneous expectations of futures returns particularly when the spot returns are low. In addition, the optimal transaction fee, which maximizes the revenue of futures exchanges, is derived in essay two. The results reveal that futures exchanges should consider adjusting transaction fees in accordance to the spot returns, and that improving the hedging effectiveness may enhance the revenue of the exchange by providing an opportunity to increase transaction fees.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Agricultural and Consumer Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Fu, Luyang

Contributors dc:contributor

• Garcia, Philip

• Economics, Agricultural

Language dc:language

eng

Identifier

(MiAaPQ)AAI3069994

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/82957