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

[Michael Weylandt]

If p => q, and we can observe ~q, we should doubt p. 

More directly, electricity is a case where your assumptions (F=S+C) about forwards pricing are transparently wrong. 

You need to think more about how forwards are really priced and then your questions about crude futures will sort themselves out. 

> On Jun 29, 2014, at 5:09 PM, Christofer Bogaso <bogaso.christofer at gmail.com> wrote:
> 
> Ofcourse Electricity can not be stored or storage cost would be
> extraordinarily high. Therefore it would have zero CY. I feel Power
> prices should always be in contango
> 
> On Mon, Jun 30, 2014 at 2:45 AM, Michael Weylandt
> <michael.weylandt at gmail.com> wrote:
>> 
>> 
>>> On Jun 29, 2014, at 4:07 PM, Christofer Bogaso <bogaso.christofer at gmail.com> wrote:
>>> 
>>> 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.
>> 
>> Do we know that?
>> 
>> Consider energy (electricity) futures....
>> 
>>> 
>>> 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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