Oil Futures Theoretical Price

cozgenc

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Is there a web site with a good model for theoretical oil futures prices with real calculations (not just some lame words like it is S0*e^(r+u-c)T)?

Thanks in advance
 
they would'nt call it Model if it's have real calculations. However, there is big element in forcasting the future price by looking at the price structure either being in contago or backwordation.
 
I don't want future oil prices. I want oil futures' prices. They are totally different things.
 
You've lost me. What's the difference between 'theoretical' oil futures prices and actual oil futures prices which are easily and freely available everywhere?
 
Theoretical prices of other financial instruments like futures of S&P or futures of FX have theoretical prices calculated using some standard models. These models are not that complicated because they are based on risk free interest rate (easily available) and time to maturity (evident). Futures of consumption goods however have other parameters that are difficult to estimate like storage costs (somewhat easier) or convinience premium (who knows what). I was asking whether there are some models to estimate those parameters. Books sugest some but I haven't seen anywhere with real calculations. They just layout the model but never really calculate.
 
Here is the only thing I do not get about these models....

--> Why does the observed price have to converge with its theoretical value? Is it not possible for the market to be out of whack long enough to bankrupt you before it moves in your favor (if it even does move in your favor)? Think LTCM, or better yet think of markets now, just look at the P/E multiples. These firesale prices of good companies are not justified, however there is no reason why they can't go much lower or much higher.
 
(q) or cost of carry = the risk free interest rate minus the convenience yield.

the convenience yield is defined here:
Convenience yield - Wikipedia, the free encyclopedia

c= risk free interest rate + (1 - Futures Price/Spot Price)/Time

So lets do an example:

Spot Price: $90
Futures Price: $91
Risk Free Interest Rate= 1%
Time: 60 days to expiration (60/365)= .16438

So we take .01+(1-91/90)/.16348 = -.0057966
We have now solved for the convenience yield.

To get the cost of carry we now subtract the risk free interest rate minus the convenience yield.

.01- (-.057966)= .06796 or rounded off to 6.8%

Cost of carry in this example is 6.8%

I hope this helps.
 
quick correction:

In the first sentence I wrote q as the symbol for cost of carry it should have been the letter b.
 
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