Wholesale beef futures contractWholesale Beef Futures Contract • June 9th, 2018
In this research, I develop methods to derive a price series that is theoretically sound for a hypothetical futures contract. I extend a futures valuation model to provide a valuation for a hypothetical futures contract. One such hypothetical contract that has been suggested as a possible solution to recent problems in live cattle futures is the wholesale beef futures contract. I present two different methods for generating the term structure of the hypothetical futures contract. The results show that both methods perform very well. The methods developed here are tested for validity using futures markets for hogs and cattle and are found similar in accuracy to a futures valuation model for existing futures. I also use the derived price series for the hypothetical wholesale beef futures contract to evaluate and compare its effectiveness as a risk management tool to the existing live cattle futures.
