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Commodity Spot and Futures Prices Under Supply, Demand, and Financial Trading: Single Input–Output Model

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  • Katsushi Nakajima

    (Ritsumeikan Asia Pacific University)

Abstract

This study analyzes the relationships of commodity spot and futures prices with convenience yield. Convenience yield is received by the owner of a spot commodity but not by the owner of the right to the commodity (e.g., futures). This is the first study to explicitly model commodity spot and futures prices using firms and speculators (i.e., supply and demand of a commodity). We found that spot and futures prices are related to convenience yield. Based on this we were able to identify the structure of convenience yield, which can be decomposed into two components: yield and cost. When speculators are introduced, the spot commodity price is the discounted futures price minus the present value of the marginal storage cost plus the convenience yield on the spot storage.

Suggested Citation

  • Katsushi Nakajima, 2020. "Commodity Spot and Futures Prices Under Supply, Demand, and Financial Trading: Single Input–Output Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(1), pages 35-59, March.
    • Handle: RePEc:kap:apfinm:v:27:y:2020:i:1:d:10.1007_s10690-019-09280-6
    DOI: 10.1007/s10690-019-09280-6
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    References listed on IDEAS

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    Cited by:

    1. Katsushi Nakajima, 2022. "Equilibrium pricing of commodity spot and forward under incomplete markets with implications on convenience yield," Annals of Finance, Springer, vol. 18(1), pages 35-80, March.

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    More about this item

    Keywords

    Commodity prices; Convenience yield; Futures price; Production; Storage;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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