imultaneous equations are invented to model supply demand equilibrium of
commodities market. As such, it may involve an attempt to ignore the presence
of financial markets. Indeed, to properly account for influence of the forward
positions in the supply-demand equilibrium one would need to know a total
volume of all forward positions on the market as well as weighted by volume of
trading average of the previous forward prices. These variables are never
observable. Also, forward contracts (futures) are generally traded through
exchange with high volume. Spot market is usually OTC with much lower volume.
Hence, it is an attempt to ignore something that cannot be ignored.
If you find yourself using simultaneous equations then check your motivation.
|
