OPTIMAL FUTURES CONTRACT DESIGN

Designing successful futures contracts is no easy task. Most new contr acts fail to attract a sustainable level of trading volume. A comparat ively new approach to identifying the attributes of successful futures contracts comes from applying the emerging literature on security des ign to the futures problem. A second and more complicated issue is to determine the optimal contract form. This paper describes the characte ristics of successful futures contracts implied by the design literatu re, and, where possible, relates these observations to empirical studi es. The paper also describes how the design literature can be applied to reveal the link between the specific terms of successful futures co ntracts to characteristics of the cash market.