Significance of the differences between futures and forward contracts

Authors

  • Rafael de Godoy Oliveira Andrade EESP-FGV
  • Afonso de Campos Pinto EESP-FGV

DOI:

https://doi.org/10.12660/rbfin.v19n3.2021.54979

Keywords:

Futures contracts, Forward contracts, Monte Carlo, Hedging

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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Published

2021-09-30

Issue

Vol. 19 No. 3 (2021): July-September

Section

Articles

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