About the commodity arbitrage

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Reference no: EM131972637

Commodity Arbitrage

Suppose you are a commodity arbitrageur on the NYMEX: you can buy oil barrels and store them at some cost, however you cannot short them. On April 8, 2009, the NYMEX crude oil barrel traded at $52.24. For what values of the 3-months forward price would you find an arbitrage? The interest rates (to borrow and save) are in the table below, and the storage costs are 1% of the value of the asset. Note: here we are assuming different (continuously-compounded) rates for lending and borrowing.

Short term: borrowing rate = 0.25, saving rate = 0.15

1-month: borrowing rate = 0.83, saving rate = 0.80

3-months: borrowing rate = 1.36, saving rate = 1.34

6-months: borrowing rate = 1.83, saving rate = 1.76

Reference no: EM131972637

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