This study tested for the presence of risk premiums on crude oil and natural gas. The econometric analysis followed from a stochastic model in which the equilibrium value of inventories depends on a convenience yield and an option value related to price uncertainty. The empirical findings...

A dynamic trader problem under uncertain demand is presented and spatial and temporal arbitrage conditions derived from first‐order conditions. A time‐varying storage premium that explains backwardation and inverse carrying charges independent of risk‐aversion, stockouts, or convenience is...