Calendar Spreads, Risk Premium and the Convenience Yield
16 Pages Posted: 29 Jul 2009
Date Written: July 27, 2009
This paper studies optimal calendar spreads in commodity futures markets while taking into account a stochastic convenience yield. We show that a convenience yield imperfectly correlated with the spot commmodity price results in an optimal strategy composed of two commodity futures contracts. These strategies reveal a calendar spread effect through the positive correlation between the two futures contracts. These strategies can easily be computed and analyzed under the Samuelson hypothesis.
Keywords: commodity futures markets, convenience yield, calendar spread, investment, Samuelson hypothesis, commodity futures prices correlation, market prices of risk
JEL Classification: G11, G12, G13
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