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Convenience Yield and Commodity Markets

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CAHIER_22_LAUTIER-1.pdf (271.2Kb)
Date
2009
Dewey
Economie financière
Sujet
Convenience yield; Non storable commodities; Arbitrage; Inventory; Commodity
JEL code
O13; G14; G24; E43
Journal issue
Bankers, Markets & Investors
Number
102
Publication date
2009
Article pages
59-66
Publisher
Revue Banque
URI
https://basepub.dauphine.fr/handle/123456789/2274
Collections
  • Chaire Finance et développement durable - Approches quantitatives
Metadata
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Author
Lautier, Delphine
Type
Article accepté pour publication ou publié
Abstract (EN)
This article explains the role of the convenience yield in the relationships linking spot and futures prices in commodity derivatives markets. First, this variable restores the non arbitrage relationship between the prices of the underlying asset and the derivative instrument. Second, it allows establishing connections between commodities and other assets. Third, it explains why firms store at an apparent loss. The convenience is however a controversial concept. Indeed, the absence of direct evidence for this quantity signifies, first that it is necessary to address the issue of estimating it and second, that it can be accused of being an ad hoc construction. Moreover, in spite of an early interest for this concept, there is no real consensus on its definition. This article aims at gathering all the reasonable explanations which were proposed trough time in the literature.

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