A question on Forward Price
Ofcourse Electricity can not be stored or storage cost would be extraordinarily high. Therefore it would have zero CY. I feel Power prices should always be in contango On Mon, Jun 30, 2014 at 2:45 AM, Michael Weylandt
<michael.weylandt at gmail.com> wrote:
On Jun 29, 2014, at 4:07 PM, Christofer Bogaso <bogaso.christofer at gmail.com> wrote: Hi again, I would like ask a small question however not really related to R. We all know that non-arbitrage Forward price of any underlying (except perhaps Interest Rate) is just the spot price plus the cost of carry. Cost of carry again depends on cost of borrowing and convenience yield.
Do we know that? Consider energy (electricity) futures....
Therefore my question is, is it true that for most consumable commodity like agricultural commodity, crude oil, the Forward market will mostly remain in backwardination? Specially for Crude oil it looks always remains in Backwardination. Because since they are consumable then buying now and storing would be more economical than buying it Forward for future use, hence CY would be higher. Another related question is, for Crude oil if Forward market becomes more in Backwardination then does it imply that, in Future it's price is expected to increase, keeping everything else same? I really appreciate your thought on the same. Thanks and regards,
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