Updating the estimation of the supply of storage

Carl R. Zulauf, Haijiang Zhou and Matthew C. Roberts

Journal of Futures Markets, 2006, vol. 26, issue 7, 657-676

Abstract: An updated supply of storage is estimated to reflect recent developments in the literature. This study adds a measure of price variability, specifically implied volatility. It also adds a measure of the call‐option value to sell stocks before the end of the storage period, specifically a measure developed by Heaney (2002). The model is estimated for U.S. soybean stocks carried between crop years. A quadratic relationship is found between stocks to use ratio and implied volatility. A statistically significant, inverse, linear relationship is found between the storage‐cost–adjusted spread and the estimated call‐option value. This finding is consistent with the much debated idea that convenience yield is a return to storage that can offset losses from storage when intertemporal price spreads are negative. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:657–676, 2006

Date: 2006
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