Explain the theory of Normal Backwardation. How does Keynes explain a risk premium if the futures market is at full carry? Keynes views futures markets as a market where the hedger, empirically short futures, buys price insurance from long speculators. The risk premium is the reward the long receives for accepting this price risk. 

Has the definition of risk evolved since Keynes developed the theory around 1920? Explain in detail.

Answer rating: 100% (QA)

The theory of Normal Backwardation is a concept in futures markets that suggests that the futures pr... View the full answer