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CFDs, forwards, futures and the cost-of-carry

journal contribution
posted on 01.04.2019, 00:00 authored by F Douglas Foster, Adrian LeeAdrian Lee, W M Liu
We show that contracts for difference (CFDs) may be viable substitutes for forward contracts and may have some features that are preferable to futures contracts. We develop parity relations between CFDs, forwards, and futures contracts using simple cost-of-carry arguments. We use these parity relations to consider whether exchange listed stock index CFDs might be viable substitutes for exchange listed futures contracts. Using the S&P/ASX 200 stock index we find that listed CFDs (ignoring an open interest charge) generate cash flows similar to listed futures contracts. Our analysis considers stochastic interest rates and uncertain dividend payments by the shares in the index.

History

Journal

Pacific basin finance journal

Volume

54

Pagination

183 - 198

Publisher

Elsevier

Location

Amsterdam, The Netherlands

ISSN

0927-538X

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2018, Elsevier B.V.