CFDP 691

Insurance, Flexibility and Non-contingent Trades


Publication Date: February 1984

Pages: 33


This paper considers non-contingent trades through either forward markets or simple contracts. The point of the inquiry is to understand the costs and benefits of trades of this nature. We focus on the tradeoff between insurance (a benefit) and the loss of flexibility in decisions (a cost) as determining properties of trading in forward markets. This tradeoff is also used to explore contract length.