Teaching Futures Markets with the “ZIP Code” Trading Game

Damianova, E.; Damianov, D.S.

Abstract

The price dynamics of futures markets and the spot-futures convergence are among the hardest concepts for students to fully understand in a traditional lecture. In this paper we present a classroom exercise designed to enable students to better grasp the intricacies of futures market trading. The simulation mirrors trading on an electronic market exchange in that students can freely submit bids and offers or enter into contracts at pre-existing quotes. We present questions and problems related to transaction data generated during the experiment to aid instructors in explaining: the mechanics of opening and closing position, the calculation of gains and losses, the daily settlement process, the futures-spot price convergence, the behavior of arbitrageurs and speculators, as well as the concepts of market efficiency and insider trading. Finally, we present experimental results from a large cohort of students in a Masters of Finance program.

Citation

Damianova, E., & Damianov, D. (2018). Teaching Futures Markets with the “ZIP Code” Trading Game. Journal of financial education, 44(1), 79-99. https://doi.org/10.2307/26573537

• Journal Article Type: Article
• Acceptance Date: Sep 20, 2017
• Publication Date: Mar 1, 2018
• Deposit Date: Sep 27, 2017
• Publicly Available Date: Apr 1, 2019
• Journal: JOURNAL OF FINANCIAL EDUCATION.
• Print ISSN: 0093-3961
• Electronic ISSN: 2332-421X
• Publisher: Financial Education Association
• Peer Reviewed: Peer Reviewed
• Volume: 44
• Issue: 1
• Pages: 79-99
• DOI: https://doi.org/10.2307/26573537
• Public URL: https://durham-repository.worktribe.com/output/1348372