Among the topics are stocks, arbitrage and trading, the extended cost-of-carry
model, the multi-period binomial model, and interest rate swaps.
Absent seasonality, the convenience yield, timing options, or quality issues, the basis in a pure cost-of-carry market represents any storage fees plus the opportunity cost of capital.
One example of a pure cost-of-carry market is single stock futures which has both quarterly and serial contracts listed in the United States.
We show that in a pure cost-of-carry environment, there are few economic benefits for either type investor from listing serial month contracts in addition to quarterly expirations.
In this section, we consider whether there are additional net benefits to investors from listing serial month contracts in a pure cost-of-carry market.
In a pure cost-of-carry market, however, seasonality, convenience yield factors, and quality or timing issues are not relevant for the pricing of futures contracts.
For hedgers, a second implication of a pure cost-of-carry market is that it is possible to construct a portfolio of the futures and underlying asset that has zero variance over the hedge horizon.
If the spot asset cost-of-carry were constant, MRM and TRM regression [beta]s would be the same.
The cost-of-carry model cannot be used to control for changes in the hedge ratio caused by changes in the futures contract time-to-maturity or other changes in the conditioning information set (such as those discussed in Bell and Krasker, 1986; and Leistikow, 1993; and those empirically verified in Leistikow, 1989).
However, in the more mainstream, longer standing, and more widely accepted cost-of-carry literature (Working, 1949, is one of the seminal papers), the ([F.
St]) as called for by the cost-of-carry model, where [[C.
The following spot-price change cost-of-carry adjustment was used.