Dynamic Asset Allocation with Forwards and Futures

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Springer Science & Business Media, Mar 30, 2005 - Business & Economics - 263 pages
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DYNAMIC ASSET ALLOCATION WITH FORWARD AND FUTURES is an advanced text on the theory of forward and futures markets which aims at providing readers with a comprehensive knowledge of how prices are established and evolve over time, what optimal strategies one can expect from the participants, what characterizes such markets, and what major theoretical and practical differences distinguish futures from forward contracts.

The book proposes an approach of these markets from the perspective of dynamic asset allocation and asset pricing theory within an inter-temporal framework. The main ingredients that are used are the assumed absence of frictions and arbitrage opportunities in financial and real markets, the uniqueness of the economic general equilibrium, when such an equilibrium is required and the tools of continuous time finance, namely martingale theory and stochastic dynamic programming.

The scope of DYNAMIC ASSET ALLOCATION WITH FORWARD AND FUTURES is essentially theoretical, with emphasis on economic meaning and financial interpretation. Regarding investment and/or hedging, focus is on optimal strategies rather than on actual practice. Simulations, however, are performed when important insights can be delivered as to the practical relevance of some theoretical results. Also, optimal strategies using futures are shown to differ markedly from those using forwards. The following issues are examined: pure hedging, investment and hedging in complete or incomplete markets, currency risk, optimal spreading, presence of stochastic dividend or convenience yields, pricing of non-redundant futures or forwards by means of general equilibrium analysis, and revisiting of existing Capital Asset Pricing Models.


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Forward and Futures Markets
Standard Pricing Results Under Deterministic and Stochastic Interest Rates
Investment and Hedging
Pure Hedging
Optimal Dynamic Portfolio Choice in Complete Markets
Optimal Dynamic Portfolio Choice in Incomplete Markets
Optimal Currency Risk Hedging
Optimal Spreading
Pricing and Hedging Under Stochastic Dividend or Convenience Yield
General Equilibrium Pricing
Equilibrium Asset Pricing In an Endowment Economy With NonRedundant Forward or Futures Contracts
Equilibrium Asset Pricing In a Production Economy With NonRedundant Forward or Futures Contracts
General Equilibrium Pricing of Futures and Forward Contracts written on the CPI
Subject Index

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About the author (2005)

Professeur a l'Universite de Paris 1 Pantheon-Sorbonne, et professeur a l'ESSEC.

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