Significance of the differences between futures and forward contracts
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Abstract
With the goal of studying the differences between futures contracts and forward contracts in the Brazilian foreign exchange market, we focus on the U.S. Dollar future contract (Dólar Futuro) traded on the BM&FBOVESPA. For illiquid maturities, it is marked to market at the theoretical price of forward contracts. Monte Carlo simulations of a hedged portfolio containing Dollar Future, DI Future and DDI Future contracts clearly show that this mark-to-market methodology should, at least, be reviewed.
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Long Paper
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