[R-SIG-Finance] A question on Forward Price

Christofer Bogaso bogaso.christofer at gmail.com
Sun Jun 29 22:07:38 CEST 2014


Hi again,

I would like ask a small question however not really related to R.

We all know that non-arbitrage Forward price of any underlying (except
perhaps Interest Rate) is just the spot price plus the cost of carry.
Cost of carry again depends on cost of borrowing and convenience
yield.

Therefore my question is, is it true that for most consumable
commodity like agricultural commodity, crude oil, the Forward market
will mostly remain in backwardination? Specially for Crude oil it
looks always remains in Backwardination. Because since they are
consumable then buying now and storing would be more economical than
buying it Forward for future use, hence CY would be higher.

Another related question is, for Crude oil if Forward market becomes
more in Backwardination then does it imply that, in Future it's price
is expected to increase, keeping everything else same?

I really appreciate your thought on the same.

Thanks and regards,



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