October 11, 2006
CME Economic Derivatives: Managing the Risk of Key Economic Indicators
At the PRMIA Chicago event on Thursday, October 26, Jerry Roberts, Director of Corporate Development, CME, and Bill Cassano, Vice President, Economic Derivatives Group, Goldman Sachs, will be discussing economic derivatives. Dennis Gartman, the editor and publisher of the Gartman Letter, a daily commentary on the global capital markets, will be the moderator.
Economic derivatives are over-the-counter products traded at the Chicago Mercantile Exchange (CME). These products allow investors to hedge risks or create exposures associated with key macroeconomic releases such as U.S. nonfarm payrolls, the Institute of Supply Management's PMI, U.S. weekly initial jobless claims, European inflation, and others. Derivative products offered include digital and vanilla options as well as forwards on the outcome of these economic releases.
CME Economic Derivatives trade on the CME Auction Markets platform through a Dutch auction process. The CME Clearing House implements a clearing process for CME Economic Derivatives.
Horse Races and Hedging
The derivatives auction is based on the parimutuel system developed by Longitude (Parimutuel Derivative Call Auction(TM) or PDCA(TM)). In a parimutuel system (which also is used in wagering markets, such as racetrack betting) all bets are pooled and payoffs and payoff probabilities are determined by the size and composition of the pool. An important feature of the parimutuel system is that it allows for price discovery and market-clearing without matching buyers and sellers.
Baron, K. and J. Lange, 'From Horses to Hedging,' Risk Magazine, 26, No. 2, 2003, pp. 73-77.
CME Auction Markets
Parimutuel betting and Dutch Auction (at Wikipedia)
To register for this event, please visit the announcement for the event before 5:00 P.M. Monday, October 23.
On behalf of the Chicago risk management community, PRMIA would like to thank the CME for their sponsorship for this event and Goldman Sachs for their participation.
We look forward to seeing you on October 26.
Regional Co-Director, Chicago