EconPapers    
Economics at your fingertips  
 

On the spot-futures no-arbitrage relations in commodity markets

Ren\'e A\"id, Luciano Campi and Delphine Lautier

Papers from arXiv.org

Abstract: In commodity markets the convergence of futures towards spot prices, at the expiration of the contract, is usually justified by no-arbitrage arguments. In this article, we propose an alternative approach that relies on the expected profit maximization problem of an agent, producing and storing a commodity while trading in the associated futures contracts. In this framework, the relation between the spot and the futures prices holds through the well-posedness of the maximization problem. We show that the futures price can still be seen as the risk-neutral expectation of the spot price at maturity and we propose an explicit formula for the forward volatility. Moreover, we provide an heuristic analysis of the optimal solution for the production/storage/trading problem, in a Markovian setting. This approach is particularly interesting in the case of energy commodities, like electricity: this framework indeed remains suitable for commodities characterized by storability constraints, when standard no-arbitrage arguments cannot be safely applied.

New Economics Papers: this item is included in nep-ene
Date: 2015-01, Revised 2018-02
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/1501.00273 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1501.00273

Access Statistics for this paper

More papers in Papers from arXiv.org
Series data maintained by arXiv administrators ().

 
Page updated 2018-02-27
Handle: RePEc:arx:papers:1501.00273