Unbiased Predictor

DEFINITION of 'Unbiased Predictor'

The notion that the current market price of a physical commodity (its cash price or currency) will be equal to its anticipated future price based on the market's forward rate. Like anything that relies on interest rate projections, this outlook can change as economic conditions change.

BREAKING DOWN 'Unbiased Predictor'

In statistical terms, "bias" is generally considered to be the variance between a prediction and the actual outcome, so an unbiased predictor is one that, one average, closely forecasts the future behavior of the variable under consideration. For example, if a futures contract is considered an unbiased predictor of oil prices, then when the contract expires the price of oil should correspond with the anticipated price.

RELATED TERMS
  1. Cash Price

    The actual amount of money that is exchanged when commodities ...
  2. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
  3. Actuals

    The physical commodity that underlies a futures contract or is ...
  4. Forwardation

    A term used in pricing futures contracts. Forwardation is a ...
  5. Narrow Basis

    A condition found in futures markets in which the spot price ...
  6. Wide Basis

    A condition found in futures markets in which the spot price ...
Related Articles
  1. Investing Basics

    Understanding Notional Value

    This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position.
  2. Trading Strategies

    Cashing In On A Commodities Boom

    They're hard to predict, but commodities cycles provide valuable information for traders.
  3. Markets

    Crude Oil Prices: Comparing Future Price Vs. Current Market Price

    Discover the differences between oil futures market prices and oil spot market prices and what leads to the differences between the two.
  4. Options & Futures

    Introduction To Trading In Oil Futures

    An introduction to oil futures, how the market arrives at oil futures prices, what futures prices mean, and how investors can exploit them.
  5. Economics

    How Do Companies Forecast Oil Prices?

    Read about the different forecasting methods that businesses use to predict future crude oil prices, and why it's so difficult to guess correctly.
  6. Options & Futures

    20 Investments: Futures Contract

    What Is It? As the name implies, futures are contracts on commodities, currencies, and stock market indexes that attempt to predict the value of these securities at some date in the future. ...
  7. Futures Traders

    Futures are financial contracts giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time. Futures are also ...
  8. Professionals

    Fundamental Differences Between Futures and Forwards

    CFA Level 1 - Fundamental Differences Between Futures and Forwards. Learn the fundamental differences between futures and forward contracts. Contrasts how and where they trade and discusses marking ...
  9. Trading Strategies

    Market Strength: S&P 500 Futures

    If you've ever watched financial television before or after the markets open you will probably notice that they often quote the latest index futures price on the "bug" in the bottom corner. ...
  10. Professionals

    Futures vs. Forwards

    CFA Level 1 - Futures vs. Forwards. Contrasts the key features of futures and forward contracts. Provides the characteristics of a futures contract deal and the parties involved.
RELATED FAQS
  1. How can I calculate the notional value of a futures contract?

    Learn how the notional value of a futures contract is calculated, and how futures are different from stock since they have ... Read Answer >>
  2. How accurate is the forward rate in predicting interest rates?

    Find out why forward rates are inconsistent and limited predictors of actual future interest rates, primarily because the ... Read Answer >>
  3. What is the difference between notional value and market value?

    Learn more about the notional and market value, how to calculate the notional value of a futures contract and the difference ... Read Answer >>
  4. What are some common markets where notional value is used?

    Find out more about the notional value of securities and which markets commonly use the notional value to indicate the total ... Read Answer >>
  5. How valuable is the forward rate as an overall economic indicator?

    Find out why the forward rate is considered an important economic indicator, the logic behind this consideration and possible ... Read Answer >>
  6. How is the spot price related to a derivative's notional value?

    Learn about the relationship between the spot price and notional value of derivative securities and how to calculate the ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center