back·ward·a·tion [bak-wer-dey-shuhn] - This is a theory developed in respect to the price of a futures contract and the contract's time to expire. Backwardation says that as the contract approaches expiration, the futures contract will trade at a higher price compared to when the contract was further away from expiration. This is said to occur due to the convenience yield being higher than the prevailing risk free rate.
Also note, this is the opposite of a contango. Contango is not a dance or a orange flavored drink.
Would you pass me the contango please? Regards
* Some of the information provided here in was found at Investopedia.com, which I find to be a very informative and extremely entertaining website. I actually prefer it to cartoons on Saturday morning.
Subscribe to:
Post Comments (Atom)
1 comment:
Is this the explanation for Gil Meche's contract?
Post a Comment