Pricing term structure risk in futures markets

Frans A. De Roon, Theo E. Nijman, Chris Veld

Research output: Contribution to journalArticleResearchpeer-review

9 Citations (Scopus)

Abstract

One-period expected returns on futures contracts with different maturities differ because of risk premia in the spreads between futures and spot prices. We analyze the expected returns for futures contracts with different maturities using the information that is present in the current term structure of futures prices. A simple affine one-factor model that implies a constant covariance between the pricing kernel and the cost-of-carry cannot be rejected for heating oil and German Mark futures contracts. For gold and soybean futures, the risk premia depend on the slope of the current term structure of futures prices, while for live cattle futures, the evidence is mixed.

Original languageEnglish
Pages (from-to)139-157
Number of pages19
JournalJournal of Financial and Quantitative Analysis
Volume33
Issue number1
Publication statusPublished - 1 Mar 1998
Externally publishedYes

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