James A. Overdahl

Fundamentals, Trader Activity and Derivative Pricing

We identify and explain a structural change in the relation between crude oil futures prices across contract maturities. As recently as 2001, near- and long-dated futures were priced as though traded in segmented markets. In 2002, however, the prices of one-year futures started to move more in sync with the price of the nearby contract. Since mid-2004, the prices of both the one-year-out and the two-year-out futures have been cointegrated with the nearby price. We link this transformation to changes in fundamentals, as well as to sea changes in the maturity structure and trader composition of futures market activity. In particular, we utilize a unique dataset of individual trader positions in exchange-traded crude oil options and futures to show that increased market activity by commodity swap dealers, and by hedge funds and other financial traders, has helped link crude oil futures prices at different maturities.

Financial Derivatives: Pricing and Risk Management

Financial Derivatives explores the contemporary world of financial derivatives, starting with a presumption of only a general knowledge of undergraduate finance. These chapters have been written by many leading figures in academics, industry, and government for the benefit of advanced undergraduates, graduate students, practicing finance professionals, and the general public. As such, the chapters in this book provide a comprehensive understanding of financial derivatives. Financial Derivatives is comprised of 37 chapters organized into six parts.