The Simultaneous Determination of Spot and Futures Prices
This paper develops a simple geometric technique for the simultaneous determination of spot and futures prices in commodity markets; and it explains the allocation between hedged and unhedged holdings of stocks. On the basis of this analysis, it is possible to determine whether changes in spot and futures prices have occurred as a result of (a) changes in the excess supply of current production, or (b) changes in price expectations.
KeywordsExpected Return Future Price Indifference Curve Future Contract Substitution Effect
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