Convergence: A Mathematical Explanation
Katie Micik DTN Markets Editor
Fri Jan 30, 2015 01:00 PM CST

OMAHA (DTN) -- Futures prices and cash prices can vary widely over the course of a futures contract's life, but at expiration the two should converge on a common value.

The price discovery function of the futures market depends on this convergence -- futures contract holders and cash buyers can count on paying the same price for a commodity at a designated spot on a designated day.

Convergence is rarely an issue, but from 2005 to 2010, the soft red winter wheat market failed to reach this state of price matching bliss. Some in the grain industry feared the 2014 ...

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