Commodities: Forwards, Futures, and Physical Markets

Free CFA Level II lesson in Alternative Investments. 13 min read, ~1,994 words.

Commodity forward price = Spot x e^(r + storage - convenience yield) x T; storage raises the price, convenience yield lowers it. Contango = futures spot (negative roll yield); backwardation = futures < spot (positive roll yield). Total futures return = spot return + roll yield + collateral yield. Convenience...