Convenience yield


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Convenience yield

The extra advantage that firms derive from holding the commodity rather than a futures position.

Convenience Yield

The extra gain that an investor receives for holding a commodity rather than an option or futures contract on that commodity. Because of the uncertainty of future events, the convenience yield can be (though is not always) quite high. For example, if one holds so many barrels of oil and there is a sudden disruption in a major pipeline, the value of the physical barrel will increase while the value of a futures contract on oil likely will decrease.
References in periodicals archive ?
A rational story for the high yields of market-discount munis could be a convenience yield demanded by individuals to deal with the complexities of computing tax liabilities.
Housing Price Variation and the Convenience Yield to Owning a Home" by Jason Thomas and Robert Savickas.
This is said to occur due to the convenience yield being higher than the prevailing risk free rate.
This convenience yield reflects the flexibility created by holding inventory.
Storage benefits may sound strange, but the notion of a convenience yield is quite intuitive.
For the crop there is assumed to be a world futures market, which can be used to determine the convenience yield rate [[sigma].
In theory, the convenience yield is the flow of services that accrue to the holder of the spot commodity but not to the holder of a futures contract.
The Relationship Between Risk Premium and Convenience Yield Models (Viola Markert and Heinz Zimmermann).
The authors argue that the corporate bond spread reflects a convenience yield that investors attribute to Treasury debt.
The classic theory of storage argues that producers and distributors never completely sell off inventories because they earn a convenience yield from holding stocks.
The benefits and costs of having a physical inventory of oil instead of a futures contract are referred to collectively as the implied convenience yield in the futures market.
In sum, these observations suggest to me that trading generated a "convenience yield" for Palm shares, just as physical trading generates a convenience yield for money.