Commodity Forward Pricing

Question 1

Rolling Contracts

Answer 1

Means closing an existing position and establishing a similar position with a later settlement.

Question 2

Front Contract

Answer 2

Futures contract with the earliest settlement date, also called the spot contract, lead contract, or nearby contract.

Question 3

Back Contracts

Answer 3

Futures contracts with later settlement dates

Distance or deferred contracts

Question 4

Convenience yield

Answer 4

Economic benefit that the holder of an inventory in the commodity receives from directly holding the inventory rather than having a long position in a forward contract

Question 5

Law of one price

Answer 5

Same asset trades in marketplaces at different prices, eh difference is soon competed away.

Question 6

Basis

Answer 6

Spot-Forward