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Cost Of Carry On Steroids: Application To Oil Futures Pricing

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Listed:
  • Eric Girard
  • Trevor Reid

Abstract

This paper develops an empirical cost of carry model with exogenously conditioned convenience yield. The approach is implemented using monthly prices of all futures contracts traded at the New York Mercantile Exchange between 1985 and 2006. Tests indicate that the model fits the data extremely well, much better than the unconditional model. Though the paper concentrates on oil, the approach can be used for any other commodity with well-developed futures markets.

Suggested Citation

  • Eric Girard & Trevor Reid, 2010. "Cost Of Carry On Steroids: Application To Oil Futures Pricing," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 4(2), pages 153-163.
    • Handle: RePEc:ibf:ijbfre:v:4:y:2010:i:2:p:153-163
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Multifactor Models; Futures Pricing; Cost of Carry;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • N2 - Economic History - - Financial Markets and Institutions

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