The intrinsic futures price is calculated as the spot price multiplied by one plus the cost-of-carry rate over the time period until expiration. The cost-of-carry rate is the risk-free interest rate minus the dividend yield. A positive cost-of-carry means futures prices are higher than the spot (contango) while a negative one means futures are lower than the spot (backwardation). Futures prices also serve as a price discovery tool, and if the market futures price is higher than the intrinsic price, it is overpriced and prices are expected to decrease.
The intrinsic futures price is calculated as the spot price multiplied by one plus the cost-of-carry rate over the time period until expiration. The cost-of-carry rate is the risk-free interest rate minus the dividend yield. A positive cost-of-carry means futures prices are higher than the spot (contango) while a negative one means futures are lower than the spot (backwardation). Futures prices also serve as a price discovery tool, and if the market futures price is higher than the intrinsic price, it is overpriced and prices are expected to decrease.
The intrinsic futures price is calculated as the spot price multiplied by one plus the cost-of-carry rate over the time period until expiration. The cost-of-carry rate is the risk-free interest rate minus the dividend yield. A positive cost-of-carry means futures prices are higher than the spot (contango) while a negative one means futures are lower than the spot (backwardation). Futures prices also serve as a price discovery tool, and if the market futures price is higher than the intrinsic price, it is overpriced and prices are expected to decrease.