The Peter Pan Contract - a Futures Contract that Never Matures

London Business School Institute of Finance and Accounting Working Paper 212

Posted: 5 Jul 1998

See all articles by Anthony Neuberger

Anthony Neuberger

City University London - Faculty of Finance

Date Written: July 1995

Abstract

One problem in using futures contracts for long-term hedging is that the contracts have to be rolled over. This entails basis risk that can significantly reduce the effectiveness of the hedge. In this paper an alternative form of futures contract is proposed. The contract never expires and can be used for long term hedging without the need for rolling over into a new contract. The contract is shown to be equivalent to a portfolio of conventional futures contracts of differing maturities. Its price is determined by arbitrage.

JEL Classification: G13

Suggested Citation

Neuberger, Anthony, The Peter Pan Contract - a Futures Contract that Never Matures (July 1995). London Business School Institute of Finance and Accounting Working Paper 212, Available at SSRN: https://ssrn.com/abstract=7083

Anthony Neuberger (Contact Author)

City University London - Faculty of Finance ( email )

London, EC2Y 8HB
Great Britain

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