Introducing New Futures Contracts: Reinforcement Versus Cannibalism
Posted: 15 Jan 2003
In order to assure survival, futures exchanges around the world are in constant search of new futures contracts that will generate a profitable level of trading volume. Introducing new futures contracts may increase or decrease the volume for those contracts already listed. Using a multi-product hedging model in which the perspective has been shifted from portfolio to exchange management, we study these effects. Using data from two exchanges that differ regarding assets traded and market liquidity (Amsterdam Exchanges versus Chicago Board of Trade) we show the usefulness of the proposed method. The method may also be used to evaluate the benefits for exchanges that plan to internationalize their activities by merging with another exchange or by cross listing other exchanges' futures contracts.
JEL Classification: G1
Suggested Citation: Suggested Citation