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YouTube T3-15: Commodity Cost of Carry: Storage Cost

Nicole Seaman

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In the cost of carry (COC) model, storage cost is treated like negative income. If we reduce the total storage cost over the life of the futures contract, given by (U), then the theoretical futures price is given by F(0) = [S(0) + U]*exp(rT). If we can represent storage cost as a constant proportion of the spot price (i.e., with continuous compounding), denoted small (u), then F(0) = S(0)*exp[(r+u)T].

David's XLS is here: https://trtl.bz/2l5IV8G

 
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