Since the beginning of 2009, Milliman’s global Financial Risk Management practice has offered 24-hour trading coverage and execution to its global hedge outsourcing clients via trading desks in Sydney, London, and Chicago. However, as with typical industry practice for variable annuity (VA) and equity-indexed annuity (EIA) hedging programs, real-time trading generally takes place only during the cash market hours of the respective risks. For example, Sydney trades Asia-Pacific risk exposures, London trades European risk exposures, and Chicago trades U.S. risk exposures.
The focus of this study is to determine the impact and potential benefits to these hedging programs of expanding futures-based real-time risk management to hours where the respective cash markets are closed but the futures markets remain open. Typically, the cash market opens for six to nine hours during a single trading day, while their respective futures contracts trade for a significantly longer period than this.