Abstract
Suppose there exist markets for yield futures contracts as well as ordinary price futures contracts. Intuitively one would think that a combined use of yield futures contracts and price futures contracts ought to provide a reasonable strategy for insuring revenue.
In the paper this is made precise. It is shown that revenue can be approximately locked in by a combined replication of these two contracts. This procedures is perfect if the correlation between yield and price is zero. The relevant dynamic strategy is characterized. It depends only on observable price information in these two separate markets, not on the specification of parameters in utility functions of the agents involved. The identified dynamic strategy is under certain conditions, equivalent to optimal revenue insurance. Only market risk is considered.
Keywords: Area yield options, futures, continuous time modelling, quantity and price securing, locking in a certain revenue, CBOT yield contracts.
Volume
Bergen, Norway
Year
2004
Categories
Actuarial Applications and Methodologies
Investments
Portfolio Strategy
Publications
ASTIN Colloquium
