normal-backwardation

In the case of a consumption commodity (e.g., corn, copper) we expected to observe contango: F(0) exceeds S(0). Contango implies (i) the cost of carry exceeds the convenience yield, and identically (ii) the risk-free rate exceeds the lease rate. We also might expect normal backwardation: F(0) is...

If the commodity has positive beta, then the theoretical futures price is less than the expected future spot price: F(0) is less than E[S(t)]. David's XLS is here: https://www.dropbox.com/s/706n2vz1mgprw26/062718-yt-normal-backwardation.xlsx

Learning objectives: Calculate, using the cost-of-carry model, forward prices where the underlying asset either does or does not have interim cash flows. Describe the various delivery options available in the futures markets and how they can influence futures prices. Explain the relationship...