Investments, tenth edition

Foreign 

Currencies

Agricultural

Metals and 

Energy

Interest Rate Futures

Equity Indexes

British pound

Corn

Copper

Eurodollars

S&P 500 index

Canadian dollar

Oats

Aluminum

Euroyen

Dow Jones Industrials

Japanese yen

Soybeans

Gold

Euro-denominated bond

S&P Midcap 400

Euro

Soybean meal

Platinum

Euroswiss

NASDAQ 100

Swiss franc

Soybean oil

Palladium

Sterling

NYSE index

Australian dollar

Wheat

Silver

British government bond

Russell 2000 index

Mexican peso

Barley

Crude oil

German government bond

Nikkei 225 (Japanese)

Brazilian real

Flaxseed

Heating oil

Italian government bond

FTSE index (British)

Canola

Gas oil

Canadian government bond

CAC-40 (French)

Rye

Natural gas

Treasury bonds

DAX-30 (German)

Cattle

Gasoline

Treasury notes

All ordinary (Australian)

Hogs

Propane

Treasury bills

Toronto 35 (Canadian)

Pork bellies

Commodity index

LIBOR

Dow Jones Euro STOXX 50

Cocoa

Electricity

EURIBOR

Industry indexes, e.g.,

Coffee

Weather

Municipal bond index

   Banking

Cotton

Federal funds rate

   Telecom

Milk

Bankers’ acceptance

   Utilities

Orange juice

Interest rate swaps

   Health care

Sugar

  

Technology

Lumber

Rice

 Table 22.1 

 Sample of futures contracts 

   The Clearinghouse and Open Interest 

 Until about 10 years ago, most futures trades in the United States occurred among floor 

traders in the “trading pit” for each contract. Today, however, trading is overwhelmingly 

conducted through electronic networks, particularly for financial futures.  

    22.2 

Trading Mechanics 

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 Prediction  Markets 

 If you find S&P 500 or T-bond contracts a bit dry, perhaps 

you’d be interested in futures contracts with payoffs that 

depend on the winner of the next presidential election, or 

the severity of the next influenza season, or the host city 

of the 2024 Olympics. You can now find “futures markets” 

in these events and many others. 

 For example, both Intrade (  www.intrade.com  ) and Iowa 

Electronic Markets ( 

 www.biz.uiowa.edu/iem  ) maintain 

presidential futures markets.   In July 2011, you could have 

purchased a contract that would pay off $1 in November 2012 

if the Republican candidate won the presidential race but 

nothing if he lost. The contract price (expressed as a percent-

age of face value) therefore may be viewed as the probability 

of a Republican victory, at least according to the consensus 

view of market participants at the time. If you believed in 

July that the probability of a Republican victory was 55%, you 

would have been prepared to pay up to $.55 for the contract. 

Alternatively, if you had wished to bet against the Republi-

cans, you could have  sold  the contract. Similarly, you could 

bet on (or against) a Democrat victory using the Democrat 

contract. (When there are only two relevant parties, betting 

on one is equivalent to betting against the other, but in other 

elections, such as primaries where there are several viable 

candidates, selling one candidate’s contract is not the same 

as buying another’s.) 

 The accompanying figure shows the price of each con-

tract from July 2011 through Election Day 2012. The price 

clearly tracks each candidate’s perceived prospects. You 

can see Obama’s price rise dramatically in the days shortly 

before the election as it became ever clearer that he would 

win the election. 

 Interpreting prediction market prices as probabilities 

actually requires a caveat. Because the contract payoff is 

risky, the price of the contract may reflect a risk premium. 

Therefore, to be precise, these probabilities are actually 

risk-neutral probabilities (see Chapter 21). In practice, how-

ever, it seems unlikely that the risk premium associated 

with these contracts is substantial. 

 WORDS FROM THE STREET