H. T. Williams, M. N. Jinadu, D. D. Fiergbo, M. T. Gideon, O. E. Patrick, M. Roger
Purpose: This study examined the transition of selected commodities from forward to future markets. Design/Methodology/Approach: A quantitative research design and purposive sampling method were adopted. Commodities such as crude oil, cocoa and sesame seeds were purposively selected from three African countries. The current prices of the selected commodities were collated and converted to a standard currency, and the put and call prices were computed using the binomial option pricing model. We used the average of the selected countries' prevailing volatility and risk-free rate. All statistical analyses were performed using Python. Research Limitation: The computed call and put prices change based on the prevailing prices of the underlying commodities. Findings: The study shows a long-run economic sustainability in Africa that is embedded in actively standardised markets with numerous economic benefits. However, the study's results also show that the computed put and call option prices for the selected commodities are relatively high. These put and call prices may force buyers and sellers seeking to hedge against commodity price falls and rises to utilise forward markets. These actions by buyers and sellers may slow the transition of forward markets to futures markets in Africa. Practical Implication: The findings highlight the need to educate all market participants on the mechanics of forward markets as potentially strategic for transitioning from forward to futures markets in Africa for economic sustainability. Social Implication: The growth of the future market hinges on concerted efforts by relevant stakeholders to ensure the availability and effective functioning of a standardised future market that promotes economic sustainability in Africa. Originality/Value: The study has shown that the futures market and derivative instruments are significant drivers of economic sustainability in Africa.