An average price futures contract is the one, whose expiration price is an average of its underlying asset prices on multiple reference dates. We critically examine the claim that the futures’ volatility is decreasing in the number of its reference dates. We prove that the claim does not generally hold and present the reasons for it. Lastly we show that what generally determines volatility of any kind of average price futures is the weight of remaining reference dates, not just the number of reference dates.
Keywords: Average price futures; Volatility; Reference dates;
JEL classification: G13, G14
