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  • Session 5 - FD

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    Daksh Khullar
    14 views7 pages
    The document discusses issues with declining trade volumes in mentha oil futures contracts on the MCX exchange. It examines whether future and spot prices are correlated using vector error correction models and analyzes basis risk. It also considers options like decreasing lot sizes and margins, reducing assaying costs, and introducing more participants. The document notes that in May 2021 the exchange reduced lot sizes and revised contract specifications in an effort to address the falling trade volumes.

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    Financial Derivatives course for Finance201

    Original Title

    Session 5_FD

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    The document discusses issues with declining trade volumes in mentha oil futures contracts on the MCX exchange. It examines whether future and spot prices are correlated using vector error correction models and analyzes basis risk. It also considers options like decreasing lot sizes and margins, reducing assaying costs, and introducing more participants. The document notes that in May 2021 the exchange reduced lot sizes and revised contract specifications in an effort to address the falling trade volumes.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    14 views7 pages

    Session 5 - FD

    Uploaded by

    Daksh Khullar
    The document discusses issues with declining trade volumes in mentha oil futures contracts on the MCX exchange. It examines whether future and spot prices are correlated using vector error correction models and analyzes basis risk. It also considers options like decreasing lot sizes and margins, reducing assaying costs, and introducing more participants. The document notes that in May 2021 the exchange reduced lot sizes and revised contract specifications in an effort to address the falling trade volumes.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 7

    Financial

    Derivatives:
    Tumbling Trade
    on the MCX
    Why is the trade falling in the mentha oil futures?
    Is there a problem with the contract?
    • Are future and spot prices cointegrated? (Vector Error Correction
    Model)
    • What about the basis risk? (Can we predict the basis over a year every
    year?)
    Options for Nathany
    1. Decreasing the size of lots and minimum margin requirements and
    increasing the limit on the maximum position in the market
    2. Assaying cost reduction? What will be the impact on the traders?
    3. Bringing in FPCs. How will the mentha oil contract benefit?
    What actually happened?
    • May 2021:
    • Lot size reduced to 2 Drums
    • Specifications revision
    Thank you
    for your patience

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