Cost of Carry on Steroids : Application to Oil Futures Pricing

This paper develops an empirical cost of carry model with endogenously conditioned convenience yield. The approach is implemented using monthly prices of all futures contracts traded at the New York Mercantile Exchange between 1985 and 2006. Tests indicate that the model fits the data extremely well, much better than the unconditional model. Though the paper concentrates on oil, the approach can be used for any other commodity with well-developed futures markets