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 ?
(32) This obviously makes it harder to find a trend in these convenience yields.
Reis, "Valuation of commodity futures and options under stochastic convenience yields, interest rates, and jump diffusions in the spot," Journal of Financial and Quantitative Analysis, vol.
Duan, "Oil convenience yields estimated under demand/supply shock," Review of Quantitative Finance and Accounting, vol.
We now examine the extent of the implied forward convenience yields on consecutive futures contracts.
Gibson, Rajna, and Eduardo Schwartz, 1990, "Stochastic Convenience Yields and the Pricing of Oil Contingent Claims," Journal of Finance, 45, 959-976.
Therefore, in the existence of futures markets, we can take from the markets the values of convenience yields. Unlike the petroleum market, the diesel market has not developed a future market, which makes it impossible to accurately calculate the convenience yield for the fuel.
Schwartz, 1998, "Pricing of Options on Commodity Futures with Stochastic Term Structures of Convenience Yields and Interest Rates", Journal of Financial and Quantitative Analysis, 33:33-59
You might object, "How could convenience yields or liquidity premia be that large?" First, recall that monetary "overpricing" can be quite large as well.
Convenience yields on the crop is related to the return, and is assumed stochastic in our model, but is a bounded variation process.
Offering photofinishing as a destination category rather than merely one of a number of service departments provided as a customer convenience yields higher sales and profits, observes Tatreau.
Figure 4 also shows the corresponding optimal shadow spot prices computed using Equation (17) and implied by the combinations of optimal spot prices and convenience yields obtained from the two-factor model.
CONVENIENCE YIELDS With continuous production, inventories are held to maintain the flow of crude from producing fields to refineries.