Jump to ContentJump to Main Navigation
CommoditiesMarkets, Performance, and Strategies$
Users without a subscription are not able to see the full content.

H. Kent Baker, Greg Filbeck, and Jeffrey H. Harris

Print publication date: 2018

Print ISBN-13: 9780190656010

Published to Oxford Scholarship Online: March 2018

DOI: 10.1093/oso/9780190656010.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 16 October 2021

Pricing of Futures Contracts

Pricing of Futures Contracts

Chapter:
(p.277) 15 Pricing of Futures Contracts
Source:
Commodities
Author(s):

Timothy A. Krause

Publisher:
Oxford University Press
DOI:10.1093/oso/9780190656010.003.0015

This chapter examines the relation between futures prices relative to the spot price of the underlying asset. Basic futures pricing is characterized by the convergence of futures and spot prices during the delivery period just before contract expiration. However, “no arbitrage” arguments that dictate the fair value of futures contracts largely determine pricing relations before expiration. Although the cost of carry model in its various forms largely determines futures prices before expiration, the chapter presents alternative explanations. Related commodity futures complexes exhibit mean-reverting behavior, as seen in commodity spread markets and other interrelated commodities. Energy commodity futures prices can be somewhat accurately modeled as a generalized autoregressive conditional heteroskedastic (GARCH) process, although whether these models provide economically significant excess returns is uncertain.

Keywords:   futures pricing, arbitrage, fair value, commodity spread, modeling commodity prices

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .