THE EFFECT OF TRADING FUTURES ON SHORT SALE CONSTRAINTS

THE EFFECT OF TRADING FUTURES ON SHORT SALE CONSTRAINTS

It is commonly believed that the trading of futures on a commodity enables the market to overcome short selling constraints on the spot commodity itself. This belief is embedded in the notion that trading strategies involving futures contracts enable traders to replicate the payoffs as if they were...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:Mathematical finance 2015-04, Vol.25 (2), p.311-338
Hauptverfasser: Jarrow, Robert, Protter, Philip, Pulido, Sergio
Format: Artikel
Sprache:eng
Schlagworte:
bubbles
Commodities
Commodities trading
complete markets
Computational Finance
Finance
Financial models
Futures
futures contracts
futures prices
martingale representation
Mathematics
overpricing hypothesis
Probability
Quantitative Finance
Sales
short sale constraints
Short sales
Stock exchange
Stock returns
Studies
supermartingale measures
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:It is commonly believed that the trading of futures on a commodity enables the market to overcome short selling constraints on the spot commodity itself. This belief is embedded in the notion that trading strategies involving futures contracts enable traders to replicate the payoffs as if they were short the spot commodity. The purpose of this paper is to investigate this common belief in a general arbitrage‐free semimartingale financial model with trading in futures and a short selling prohibition on the spot commodity. We show via various examples that, in general, this common belief is incorrect. Furthermore, we provide a set of sufficient conditions, albeit very restrictive, under which the common belief is true.
ISSN:0960-1627
1467-9965
DOI:10.1111/mafi.12013