Tail risk aversion and backwardation of index futures (Q6576882)

The paper deals with the dependence between the price of the future contract and the price of the underlying asset. The starting point is the classical ``cost-of-carry'' model\N\[\NF_{t,T}= S_t \exp((r-d)(T-t)),\N\]\Nwhere \(T\) is the maturity, \(r\) and \(d\) are the risk-free rate and dividend yield. At the example of China Financial Future Exchange quotations during the 2015 market crash, the authors show that ``in the real life'' under the stress conditions the above theoretical formula is not ``fully'' valid. The so called backwardation is observed. The authors provide and test several hypotheses quantifying these phenomena.