In finance, a stock market index future is a cash-settled futures contract on the value of a particular stock market index.
Contents |
The turnover for the global market in exchange-traded equity index futures is notionally valued, for 2008, by the Bank for International Settlements at USD 130 trillion[1].
Stock index futures are used for hedging, trading, and investments.
Please note the following cases of equity hedging with index futures:
Equity index futures and index options tend to be in liquid markets for close to delivery contracts. They trade for cash delivery, usually based on a multiple of the underlying index on which they are defined (for example £10 per index point).
OTC products are usually for longer maturities, and are usually a form of options product. For example, the right but not the obligation to cash delivery based on the difference between the designated strike price, and the value of the designated index at the expiration date. These are traded in the wholesale market, but are often used as the basis of guaranteed equity products, which offer retail buyers a participation if the equity index rises over time, but which provides guaranteed return of capital if the index falls. Sometimes these products can take the form of exotic options (for example Asian options or Quanto options).
Forward prices of equity indices are calculated by computing the cost of carry of holding a long position in the constituent parts of the index. This will typically be
Indices for futures are the well-established ones, such as S&P 500, FTSE, DAX, CAC40 and other G12 country indices. Indices for OTC products are broadly similar, but offer more flexibility.
|
|||||||||||||||||||||||||||||||||||||