Alternative methods of weighting

It is generally considered that capitalization weighted indices give the most accurat indication of the collective movement in corporate asset or liability prices. However two alternative methods of weighting the constituents of equity indices are fowl^,‘equally weighted‘ and ‘price weighted‘. In the case of equally weighted indices, a’ equal amount of money is assumed to be invested in each security in the index Changes in the index thus represent changes in the value of the portfolio. Pri weighted indices reflect the average price of the securities in the index and Chang: in the index represent the average price change of the securities in the index. The Dow—Jones and the Major Market Index of the American Stock Exchange (MMI) a. both of the price weighted form. The FT 30 is a geometric average equally weight index. Only the Major Market Index has a futures contract based upon it. Read more »

Posted: June 28th, 2008 under Commodities Futures, Foreign Exchange Futures, Future Management, Futures Contracts, Futures Trading System, Managed Futures, Short Futures, Stock Futures, investment.
Comments: 5

Bonds are frequently purchased to fund future liabilities because of the relative certainty of the cash flows which are set contractually. However, the certainty as to the value of the terminal value of those future cash flows depends upon two factors:

the rate at which the future coupons can be reinvested remaining unchanged;

if the bond has a maturity longer than the desired holding period, the level of interest rates is the same at the beginning and end of the holding period. Read more »

Posted: June 17th, 2008 under Crude Oil Futures, Futures Options, Futures Prices, Futures Spreads, Short Futures, Silver Futures.
Comments: 2

One of the many obstacles placed in the way of institutions in Europe that are keen to use futures and options in their institutional portfolios has been that the trustees responsible for those portfolios would not know how to fulfill their responsibilities in those funds and that performance measurement of such portfolios would be extremely difficult.

In an effort to combat this problem in the UK at least, Liffe and LTOM (the London Traded Options Market, which is now part of Liffe) published their final recommendations for the reporting and performance measurement of financial futures and options in investment portfolios, early in 1992.

These recommendations aimed to lay down a standard for the treatment of futures and options which:

• can be adopted by all parties in the investment industry; and
• demonstrates to pension fund trustees the effect of futures and options on their portfolio performance simply and without further complicating portfolio variations.

Read more »

Posted: February 4th, 2008 under Futures Contracts, Short Futures.
Comments: 5