Strategic interactions and negative oil prices
Annals of Financial Economics
; 2021.
Article
in English
| Scopus | ID: covidwho-1606304
ABSTRACT
This paper argues on theoretical grounds that the negative oil prices event on April 20, 2020, was mainly due to the strategic interactions among some active traders on both sides of the futures contract. We present a three-player game of futures trading in which a continuum range of negative price can be supported as (strong) Nash equilibrium, yet none of those constitutes an E-equilibrium originally developed by Ma (2009). We further propose the notion of coalition-with-side-payment as a solution concept for the environment where strategic interactions and transfer payments among players are allowed. Our model captures the mechanism underlying futures price manipulation, and its predictions largely agree with the observations on that day, which are beyond the scope of demand-supply and physical delivery narratives. © 2021 World Scientific Publishing Company.
Full text:
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Collection:
Databases of international organizations
Database:
Scopus
Language:
English
Journal:
Annals of Financial Economics
Year:
2021
Document Type:
Article
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