Commodity Term Structure Risk Premia

The increasing trend of investment into commodity indices creates arbitrage opportunities along the commodity term structure due to the rising demand for near term futures contracts. This can create a local excess contango which is the main underlying economic rationale for this strategy. The strategy builds long / short commodity futures portfolio by going long the maturity which offers the highest implied roll yield and short the front month contract. For seasonal commodities the strategy uses segment slopes due to the seasonal variation of their risk premia.

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