ECN 506 Lecture 5: ECN 506 WEEK 5.5
Document Summary
Futures contract: agreement to trade an asset for a certain price at a future point in time, the delivery date. One party agrees to sell the asset and another agrees to buy. The oldest futures contracts are those for agricultural products, such as grain and cotton. Farmers have traded these contracts for centuries. Futures also exist for nonagricultural commodities, such as oil and natural gas, and for securities, such as bonds and stocks. These financial futures were invented in the 1970s. The most common are futures for treasury bonds and for stock indexes. Some futures contracts, such as those for treasury bonds, literally require the seller to deliver securities to the buyer. Other contracts specify cash payments based on security prices. For example, a seller of futures on the s&p 500 does not deliver shares of the 500 stocks. Instead, for each future, she pays an agreed-upon multiplier times the s&p index on the delivery date.
