Futures market revolutionizes guidance for commodity producers and users.
The article discusses how commodity contracts are priced differently, with futures contracts being reset daily and forward contracts staying fixed. The value of a futures contract starts at zero each day and changes based on market expectations. If futures price changes are unrelated to market returns, the futures price equals the expected spot price. The futures market helps manage risk for businesses involved in commodities. By using certain assumptions, formulas for forward contracts and commodity options can be derived from the futures price and other factors.