Inventory Dynamics Under Transaction Costs
14 Pages Posted: 24 Mar 2020
Date Written: May 2000
A conceptual model of storage behavior is developed. Optimal intertemporal pricing is derived to analyze the effects of transaction costs on storage andarbitrage pricing. It is shown how transaction costs can rationalize the existence of an inverse carrying charge for inventory. The model is applied to U.S. soybeans stocks for the period 1960–95. The empirical results suggest that transaction costs have a significant influence on storage behavior andintertemporal arbitrage pricing.
Keywords: inventory, arbitrage pricing, convenience yield, soybean, G310, Q110
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