Quantitative Finance Approaches for Pricing Futures Contracts

EasyChair Preprint 15050

Abstract

Futures contracts are essential financial instruments used for hedging, speculation, and arbitrage across various asset classes. Accurately pricing these contracts is crucial for market participants and financial institutions to manage risk and optimize trading strategies. Quantitative finance provides a range of sophisticated approaches for pricing futures contracts, each with unique methodologies and applications. This abstract explores the key quantitative finance approaches for pricing futures contracts, including classical models, stochastic processes, and advanced numerical techniques. The study begins with a review of foundational models such as the cost-of-carry model, which integrates the cost of holding an asset with the futures price. It then examines the application of stochastic differential equations (SDEs) to model the dynamics of underlying asset prices, using techniques such as the Black-Scholes framework for pricing European-style futures and the Heath JarrowMorton framework for interest rate futures.

Keyphrases: Algorithmic Trading, Arbitrage Pricing Theory, Binomial model, Black-Scholes model, Financial derivatives, GARCH models, Hedging strategies, Machine Learning in Finance, Markov chains, Monte Carlo simulation, Option Pricing Theory, Pricing Models, Quantitative Finance, Volatility forecasting, futures contracts, interest rate models, numerical methods, risk management, stochastic processes, term structure models

@booklet{EasyChair:15050,
  author    = {Wayzman Kolawole},
  title     = {Quantitative Finance Approaches for Pricing Futures Contracts},
  howpublished = {EasyChair Preprint 15050},
  year      = {EasyChair, 2024}}