Instructional Video: Commodity Forwards and Futures

Topic Progress:

McDonald, Chapter 6 is a 32 minute instructional video covering the following learning objectives:

* Define and apply commodity concepts such as storage costs, carry markets, lease rate, and convenience yield.
* Identify factors that impact prices on agricultural commodities, metals, energy, and weather derivatives.
* Explain the basic equilibrium formula for pricing commodity forwards.
* Describe an arbitrage transaction in commodity forwards, and compute the potential arbitrage profit.
* Define the lease rate and explain how it determines the no-arbitrage values for commodity forwards and futures.
* Describe the cost of carry model and illustrate the impact of storage costs and convenience yields on commodity forward prices and no-arbitrage bounds.
* Compute the forward price of a commodity with storage costs.
* Compare the lease rate with the convenience yield.
* Explain how to create a synthetic commodity position, and use it to explain the relationship between the forward price and the expected future spot price.

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