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Using futures contracts for corporate hedging: The problem of expiry and a possible solution

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  • Anthony Neuberger

Abstract

Companies using futures contracts for hedging purposes need to roll over their contracts if the maturity of their exposure exceeds that of the futures contracts. This entails basis risk that can reduce significantly the effectiveness of the hedge. In this paper an alternative form of futures contract is proposed. the contract never expires and can be used for long-term hedging without the need for rolling-over into a new contract. the contract is shown to be equivalent to a portfolio of conventional futures contracts of differing maturities. Its price is determined by arbitrage against the underlying asset. Copyright Blackwell Publishers Ltd. 1996.

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  • Anthony Neuberger, 1996. "Using futures contracts for corporate hedging: The problem of expiry and a possible solution," European Financial Management, European Financial Management Association, vol. 2(3), pages 263-271.
  • Handle: RePEc:bla:eufman:v:2:y:1996:i:3:p:263-271
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-036X.1996.tb00043.x
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    Cited by:

    1. Joseph, Nathan Lael, 2000. "The choice of hedging techniques and the characteristics of UK industrial firms," Journal of Multinational Financial Management, Elsevier, vol. 10(2), pages 161-184, June.

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