In this paper, we present a simplified macroeconomic model where money demand does not depend on the level of income. We then derive aggregate demand in a simple four quadrant diagram similar to a standard IS-LM. The analysis is extended to a model including net exports. The standard economic...

This paper analyzes optimal hedging of a tradable risk (e.g. price risk or exchange rate risk) with forward contracts in the presence of untradable inflation risk. Utility is defined over real wealth. Optimal forward positions are derived relative to a given initial exposure in the tradable...

This paper presents a classroom experiment where students participate in a simulated futures market. This experiment can be run in about an hour and allows students to interact, negotiate, try different strategies, see how their accounts are closed, and observe how spot and futures markets...

The traditional derivation of risk-neutral probability in the binomial option pricing framework used in introductory mathematical finance courses is straightforward, but employs several different concepts and is is not algebraically simple. In order to overcome this drawback of the standard...

In this paper we discuss the continued transition of financial markets towards trade standardization and the clearing of transactions, outlining the role of central clearing counterparties CCPs in reducing systemic and idiosyncratic risk. We contrast this with a discussion on bespoke non-cleared...

In this tutorial article, the strategies available to hedge market risks arising from different financing instruments are explained. Financial derivatives, whether futures or options have been widely applied in companies to mitigate or eliminate potential losses due to the uncertainty in...