The Efficacy of Conditional Cost of Carry Models in Pricing Oil Futures

Review of Futures Markets, Vol. 18, No. 3, 2009-2010

41 Pages Posted: 17 Dec 2009

See all articles by Eric Girard

Eric Girard

Siena College - School of Business

Amit Sinha

Bradley University - Department of Finance

Rita Biswas

University at Albany - SUNY

Date Written: December 11, 2009

Abstract

This paper develops an empirical cost of carry model for pricing crude oil futures by introducing an exogenously conditioned convenience yield as well as stochastic volatility. The approach is tested using monthly prices of all light crude oil futures contracts traded on the New York Mercantile Exchange between 1985 and 2006. The results indicate that the model fits the data extremely well relative to the unconditional model. Though the paper focuses on oil, the approach can be used for any other consumption commodity with well-developed futures markets.

Keywords: Oil Futures, Cost of Carry

JEL Classification: G13

Suggested Citation

Girard, Eric and Sinha, Amit and Biswas, Rita, The Efficacy of Conditional Cost of Carry Models in Pricing Oil Futures (December 11, 2009). Review of Futures Markets, Vol. 18, No. 3, 2009-2010, Available at SSRN: https://ssrn.com/abstract=1522288

Eric Girard

Siena College - School of Business ( email )

Siena Hall 301
515 Loudon Road
Loudonville, NY 12211-1462
United States

Amit Sinha (Contact Author)

Bradley University - Department of Finance ( email )

1501 West Bradley Avenue
Peoria, IL 61625
United States
3096773582 (Phone)

Rita Biswas

University at Albany - SUNY ( email )

1400 Washington Ave.
Albany, NY 12222
United States
518-442-4996 (Phone)
518-442-3045 (Fax)

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