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
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: Suggested Citation