Spot Price/Futures Relationship Sample Clauses

Spot Price/Futures Relationship. ‌ The theory of storage (Working 1949) explains the relationship between the spot price of a commodity and the futures price. Also, contingent valuation models, like Xxxxxx and Xxxxxxxx (1990), can estimate futures price series that are conceptually valid under certain assumptions. To accurately model a relationship between spot and futures prices we start with the theory of storage. The theory of storage as in Fama and French (1987) models a futures price as a function of the spot price, interest rate, storage costs, and convenience yield. The theory of storage states that the difference in the spot price and futures price is a result of the interest lost from the spot price of the commodity, the convenience yield accrued from holding the commodity, and the cost to store the commodity until delivery. Spot price, interest rate, and storage costs are all straight forward, but a concept like convenience yield is a more abstract concept.
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Related to Spot Price/Futures Relationship

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