Cost of Carry on Steroids: Application to Oil Futures Pricing

The International Journal of Business and Finance Research, Vol. 4, No. 2, pp. 153-163, 2010

11 Pages Posted: 9 Sep 2010

See all articles by Eric Girard

Eric Girard

Siena College - School of Business

Trevor Reid

Wells Fargo Financial

Date Written: 2010

Abstract

This paper develops an empirical cost of carry model with endogenously 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.

Keywords: Multifactor Models, Futures Pricing, Cost of Carry

JEL Classification: F3, G1, N2

Suggested Citation

Girard, Eric and Reid, Trevor, Cost of Carry on Steroids: Application to Oil Futures Pricing (2010). The International Journal of Business and Finance Research, Vol. 4, No. 2, pp. 153-163, 2010, Available at SSRN: https://ssrn.com/abstract=1667134

Eric Girard (Contact Author)

Siena College - School of Business ( email )

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

Trevor Reid

Wells Fargo Financial ( email )

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