File talk:Contangobackwardation.png

I think there is a problem with this graph. Here (http://www.wikicfo.com/Wiki/Contango.ashx) it says: "Contango is a term used to describe the forward yield curve when it is upward sloping"

Here (http://www.riskglossary.com/link/backwardation.htm) also: "Contango is a condition where forward prices exceed spot prices, so the forward curve is upward sloping"

???

No. The curve is in fact correct. But what it depicts is not clearly explained. What is shown is the evolution of the forward price (of a future) and the expected spot price for a given maturity as the current date approaches the maturity date. So, for if today you want to buy a future for a year from now in market in contango, you will pay more than the expected spot price, say 10% (ouch!). But in three months from now, closer to the maturity date, you will pay only 7.5% above the expected spot price for a future maturing in nine months. Six months from today, you will pay 5% over for delivery 6 months later then nine months from today, 2.5% above for delivery 3 months later, and so on until you. The closer you get to a delivery date, the more the future for this date is supposed to converge to the expected spot price. Hence the slope for a given maturity over time is down in a contango. Same for a backwardated market, the slope for a given maturity is up. Hope this help.

Arugia (talk) 21:37, 2 July 2012 (UTC)[reply]

Tnx, it helped. It is not so straightforward, and every single word is very important... — Preceding unsigned comment added by 161.53.202.225 (talk) 08:55, 4 July 2012 (UTC)[reply]