Convenience yield

(redirected from Convenience Yields)

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 ?
In conclusion, for these reasons we think our assumption--that the convenience yields extracted from long-term Treasuries apply in the same measure to Treasury bills--is conservative; but it is nonetheless an assumption, and one should bear this in mind in interpreting our results.
Milonas and Henker (2001) found that crude oil price spreads are affected by convenience yields and that oil spreads and convenience yields are positively related in the near-maturity contracts.
But once home prices stopped rising, endogenous convenience yields plummeted so that they now reflect only the much lower long-run usage benefits of homeownership.
Convenience yields as call options: An empirical analysis.
Therefore, in the existence of futures markets, we can take from the markets the values of convenience yields.
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?
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.
Wright suggested that the authors' large estimates for convenience yields resulted from conflating the liquidity premium with a credit spread.
CONVENIENCE YIELDS With continuous production, inventories are held to maintain the flow of crude from producing fields to refineries.