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On inverse carrying charges and spatial arbitrage

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  • Donald F. Larson

Abstract

A dynamic trader problem under uncertain demand is presented and spatial and temporal arbitrage conditions derived from first‐order conditions. A time‐varying storage premium that explains backwardation and inverse carrying charges independent of risk‐aversion, stockouts, or convenience is developed. Random‐returns and cost‐of‐carry models are expressed as special conditions of the derived model. An applied composite‐error model is estimated using data from the London Metal Exchange's copper contract. Predictions of the model are tested against well‐known alternatives. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:305–336, 2007

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  • Donald F. Larson, 2007. "On inverse carrying charges and spatial arbitrage," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(4), pages 305-336, April.
    • Handle: RePEc:wly:jfutmk:v:27:y:2007:i:4:p:305-336
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    1. Donald F. Larson & Julian Lampietti & Christophe Gouel & Carlo Cafiero & John Roberts, 2014. "Food Security and Storage in the Middle East and North Africa," The World Bank Economic Review, World Bank, vol. 28(1), pages 48-73.
    2. Yamauchi, Futoshi & Larson, Donald F., 2019. "Long-term impacts of an unanticipated spike in food prices on child growth in Indonesia," World Development, Elsevier, vol. 113(C), pages 330-343.
    3. Larson, Donald F. & Sarris, Alexander, 2009. "The performance of Bulgarian food markets during reform," Policy Research Working Paper Series 4876, The World Bank.
    4. Jason Stevens, 2013. "The benefits of storage and non‐renewable resource price dynamics," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 239-265, February.
    5. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, October.

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