The importance of developing future contracts: a case study of Iran Agricultural Commodity Exchanges
AbstractIn addition to interest in establishing local exchanges, there are growing interests in countries without futures markets to use established contracts on existing world exchanges. Cash contracts are dominant in Iran Agricultural Commodity Exchange (IACE), established recently in 2004 but cannot play relevant role of hedge for producers in agricultural markets. This paper attempts to find out either existing future contracts in the exchanges of rest of the world or establishing new future contracts are more relevant for the IACE. In this regard, we utilized the basis risk analysis to study whether or not local physical cash markets in Iran have a strong price relationship to existing futures contracts. The usefulness of making future contracts available at the IACE operators is also investigated using simulation of futures price in a Monte Carlo approach framework. The results showed that the usefulness of the particular foreign future contract (such as Tokyo Grain Exchange) in hedging domestic cash price risks is low. Either, there could be inefficiencies related to the transmission of information to the Iran agricultural markets. Furthermore, using effective risk management tools are needed for such future contracts in the IACE.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 29593.
Date of creation: Dec 2006
Date of revision:
Basis Risk Analysis; Monte Carlo simulation approach; Futures Contract; Iran exchange;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bamba, Ibrahim & Reed, Michael R., 2004. "Monetary Policy Impacts on Cash Crop Coffee and Cocoa Using Structural Vector Error Correction Model," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20056, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Wei, J.Z. & Duan, J.C., 1999. "Pricing Foreign Currency and Cross-Currency Options Under GARCH," Rotman School of Management - Finance, Rotman School of Management, University of Toronto 99-01, Rotman School of Management, University of Toronto.
- Du, Wen, 2004. "International Market Integration Under Wto: Evidence In The Price Behaviors Of Chinese And Us Wheat Futures," 2004 Annual meeting, August 1-4, Denver, CO, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20115, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.