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Updating the estimation of the supply of storage
Author(s) -
Zulauf Carl R.,
Zhou Haijiang,
Roberts Matthew C.
Publication year - 2006
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20205
Subject(s) - volatility (finance) , econometrics , economics , convenience yield , offset (computer science) , measure (data warehouse) , quadratic equation , financial economics , mathematics , computer science , spot contract , database , programming language , futures contract , geometry
An updated supply of storage is estimated to reflect recent developments in the literature. This study adds a measure of price variability, specifically implied volatility. It also adds a measure of the call‐option value to sell stocks before the end of the storage period, specifically a measure developed by Heaney (2002). The model is estimated for U.S. soybean stocks carried between crop years. A quadratic relationship is found between stocks to use ratio and implied volatility. A statistically significant, inverse, linear relationship is found between the storage‐cost–adjusted spread and the estimated call‐option value. This finding is consistent with the much debated idea that convenience yield is a return to storage that can offset losses from storage when intertemporal price spreads are negative. © 2006 Wiley Periodicals, Inc. Jrl Fut Mark 26:657–676, 2006