Chapter 12

Basis risk is the dispersion in economic returns associated with changes in the relationship between spot prices and futures prices.

The Bloomberg Commodity Index (BCOM), formerly the Dow Jones-UBS Commodity Index, is a long-only index composed of futures contracts on 22 physical commodities.

Collateral yield, is the interest earned from the riskless bonds or other money market assets used to collateralize the futures contract.

A commodity-linked note (CLN) is an intermediate-term debt instrument whose value at maturity is a function of the value of an underlying commodity or basket of commodities.

Convergence at settlement is the process of the futures price nearing the spot price as settlement approaches, and the two prices matching each other at settlement.

The return generated exclusively from changes in futures prices is known as the excess return of a futures contract.

A fully colleteralized position is a position in which the cash necessary to settle the contract has been posted in the form of short-term, riskless bonds.

A heterogeneous value differs across one or more dimensions.

Inflation is the decline in the value of money relative to the value of a general bundle of goods and services.

Inflation risk is the dispersion in economic outcomes caused by uncertainty regarding the value of a currency.

An investable index has returns that an investor can match in practice by maintaining the same positions that constitute the index.

A nominal price refers to the stated price of an asset measured using the contemporaneous values of a currency.

A production-weighted index weights each underlying commodity using estimates of the quantity of each commodity produced.

A real price refers to the price of an asset that is adjusted for inflation through being expressed in the value of currency from a different time period.

The Reuters/Jefferies Commodity Research Bureau (CRB) Index is the oldest major commodity index and is currently made up of 19 commodities traded on various exchanges.

Roll yield or roll return is properly defined as the portion of the return of a futures position from the change in the contract's basis through time.

Roll yield or roll return is properly defined as the portion of the return of a futures position from the change in the contract's basis through time.

Spot return is the return on the underlying asset in the spot market.

The Standard & Poor's Goldman Sachs Commodity Index (S&P GSCI) is a long only index of physical commodity futures.