Futures Contracts as Instrument of Risks Hedging

In recent years, Russian companies have had a great need to limit financial risks. Investors and companies have started recognizing the importance of using derivatives as a risk management tool in the face of high and growing uncertainty over the past decade. Therefore, the use of hedging strategies that could ensure the stable functioning of economic entities and guarantee their development even in the most extreme conditions has become one of the most relevant issues. The novelty of this study lies in the fact that the problem of hedging risks with futures is of great importance, but not sufficiently developed. The main purpose of this study is to analyze the use of futures contracts for hedging financial risks as well as consider different strategies of risk hedging. Data on the Russian MOEX stock market and the Russian derivatives market are used for the empirical part. A stock portfolio composed of blue-chip securities is chosen as a hedging target. The empirical analysis implements three strategies of hedging positions: direct hedging of the selected portfolio with the futures contracts on securities included in the portfolio, cross hedging with futures contracts on the MOEX index and cross hedging with the futures contracts on the RTS index and the U.S. Dollar-Russian ruble exchange rate. The results of the analysis have shown that the use of futures contracts provides great opportunities for managing financial risks. Furthermore, direct hedging turned out to be the most effective hedging strategy.