Commodity Futures Pricing: Testing for the Nonzero Premium and Predicting the Future Spot Price

Open Access
Author:
Dolente, Christine Marie
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • James Alan Miles, Thesis Supervisor
  • James Alan Miles, Honors Advisor
  • Timothy T Simin, Faculty Reader
Keywords:
  • commodities
  • futures contracts
  • pricing theory
Abstract:
Conventionally, commodity futures contract prices are calculated as a function of the spot price, interest rate, storage cost, and convenience yield. An alternative pricing theory of commodity futures says that the futures price is broken down into two components: the expected risk premium and the expected future spot price. This thesis tests the theory to determine if commodity futures prices can be used to find the nonzero risk premium and the future spot price.