MEASURING ASSET VALUES FOR CASH SETTLEMENT IN DERIVATIVE MARKETS - HEDONIC REPEATED-MEASURES INDEXES AND PERPETUAL FUTURES

Two proposals are made that may facilitate the creation of derivative market instruments, such as futures contracts, cash settled based on e conomic indices. The first proposal concerns index number construction : indices based on infrequent measurements of nonstandardized items ma y control for quality change by using a hedonic repeated measures meth od, an index number construction method that follows individual assets or subjects through time and also takes account of measured quality v ariables. The second proposal is to establish markets for perpetual cl aims on cash flows matching indices of dividends or rents. Such market s may help us to measure the prices of the assets generating these div idends or rents even when the underlying asset prices are difficult or impossible to observe directly. A perpetual futures contract is propo sed that would cash settle every day in terms of both the change in th e futures price and the dividend or rent index for that day.