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Quantitative Finance · Glossary

What is Storage-limit risk?

Definition 21.4 Strategies I: Equities and Futures · Chapter 21 — Calendar Spreads and Curve Trades

Storage-limit risk is the risk that a commodity’s contango widens beyond the cost of storage when storage runs out, so that a position betting on the spread narrowing (long the nearer delivery, short the farther) loses without the bound that full carry normally provides.

The annualised carry, 12 (F_ near/F_ far), of the WTI pair the rule held in the first half of 2020, from the EIA’s settlements, and the days on which the unfiltered rule was long the spread. Data: s1_curve.wti.
Figure 21.2. The annualised carry, 12ln⁡(Fnear/Ffar)12\ln(F_{\text{near}}/F_{\text{far}}), of the WTI pair the rule held in the first half of 2020, from the EIA’s settlements, and the days on which the unfiltered rule was long the spread. Data: s1_curve.wti.
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