Arbitrage Opportunities in the Klibor Futures Market in Malaysia

A futures contract is an agreement to buy or sell an asset at a future date at a price agreed upon today. The Kuala Lumpur Interbank Offered Rate (“KLIBOR”) futures or known as FKB3 is the interest rate futures contract available in Malaysia. This study examines the availability of arbitrage oppo...

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Main Author: Shahbudin, Shakirah
Format: Thesis
Language:English
English
Published: 2006
Online Access:http://psasir.upm.edu.my/id/eprint/112/1/GSM_2006_3A.pdf
http://psasir.upm.edu.my/id/eprint/112/
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spelling my.upm.eprints.1122013-05-27T06:45:39Z http://psasir.upm.edu.my/id/eprint/112/ Arbitrage Opportunities in the Klibor Futures Market in Malaysia Shahbudin, Shakirah A futures contract is an agreement to buy or sell an asset at a future date at a price agreed upon today. The Kuala Lumpur Interbank Offered Rate (“KLIBOR”) futures or known as FKB3 is the interest rate futures contract available in Malaysia. This study examines the availability of arbitrage opportunities after accounting for transaction costs for interest rate futures contract. Fair value of the KLIBOR futures price is calculated using Implied Forward Rate and is compared to the actual price to determine the arbitrage opportunities from 1996 to 2003. The pricing of the KLIBOR futures contract is said to be efficient when the mispricing between fair value and actual value is small, if not zero. When mispricing is small, the benefit will spill over to the hedgers, whereby they can make a more effective hedging decision. The findings show that mispricing is small for contracts near to maturity and it increases as the contracts move further from maturity. This suggests that arbitrage opportunities are available to be exploited for contracts furthest from maturity. It also suggests that hedging decision can be made effectively if one trades in contracts near to maturity. More concerted efforts should be in place to encourage domestic and foreign retailers as well as foreign institutions to trade in KLIBOR futures contract. To provide liquidity in the interest rate futures market, Market Makers’ Scheme should be reintroduced. The finding also shows that the difference is narrowing between the actual price and the fair price of interest rate futures contracts as a function of time to maturity. 2006-12 Thesis NonPeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/112/1/GSM_2006_3A.pdf Shahbudin, Shakirah (2006) Arbitrage Opportunities in the Klibor Futures Market in Malaysia. Masters thesis, Universiti Putra Malaysia. English
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
English
description A futures contract is an agreement to buy or sell an asset at a future date at a price agreed upon today. The Kuala Lumpur Interbank Offered Rate (“KLIBOR”) futures or known as FKB3 is the interest rate futures contract available in Malaysia. This study examines the availability of arbitrage opportunities after accounting for transaction costs for interest rate futures contract. Fair value of the KLIBOR futures price is calculated using Implied Forward Rate and is compared to the actual price to determine the arbitrage opportunities from 1996 to 2003. The pricing of the KLIBOR futures contract is said to be efficient when the mispricing between fair value and actual value is small, if not zero. When mispricing is small, the benefit will spill over to the hedgers, whereby they can make a more effective hedging decision. The findings show that mispricing is small for contracts near to maturity and it increases as the contracts move further from maturity. This suggests that arbitrage opportunities are available to be exploited for contracts furthest from maturity. It also suggests that hedging decision can be made effectively if one trades in contracts near to maturity. More concerted efforts should be in place to encourage domestic and foreign retailers as well as foreign institutions to trade in KLIBOR futures contract. To provide liquidity in the interest rate futures market, Market Makers’ Scheme should be reintroduced. The finding also shows that the difference is narrowing between the actual price and the fair price of interest rate futures contracts as a function of time to maturity.
format Thesis
author Shahbudin, Shakirah
spellingShingle Shahbudin, Shakirah
Arbitrage Opportunities in the Klibor Futures Market in Malaysia
author_facet Shahbudin, Shakirah
author_sort Shahbudin, Shakirah
title Arbitrage Opportunities in the Klibor Futures Market in Malaysia
title_short Arbitrage Opportunities in the Klibor Futures Market in Malaysia
title_full Arbitrage Opportunities in the Klibor Futures Market in Malaysia
title_fullStr Arbitrage Opportunities in the Klibor Futures Market in Malaysia
title_full_unstemmed Arbitrage Opportunities in the Klibor Futures Market in Malaysia
title_sort arbitrage opportunities in the klibor futures market in malaysia
publishDate 2006
url http://psasir.upm.edu.my/id/eprint/112/1/GSM_2006_3A.pdf
http://psasir.upm.edu.my/id/eprint/112/
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score 13.18916