Answered

Expand your knowledge base with the help of IDNLearn.com's extensive answer archive. Discover in-depth answers from knowledgeable professionals, providing you with the information you need.

The current spot price of WTI Houston Crude Oil Futures, expiring in 1-year, is $43 (per bbl). You can contract storage cost for oil, for one year, at 2% (of the underlying spot price) on a continuously compounded basis. The risk-free rate is 0.5% per annum on a continuously compounded basis. If the current spot price for oil is $40.50, what is the implied convenience yield for this contract?

Sagot :

Tundexiidn

Answer:

-3.49%

Explanation:

Theoretical price (Ft) = $43

Current spot price (St) = $40.5

Storage cost (u) = 2%

Risk free rate (Rf) = 0.5%

T = 1 year

Let y = Convenience yield

Ft = St e^(Rf + u - y)T

43 = 40.5 e^(0.005 + 0.02 - y)

y = - 3.49%

Hence, convenience yield = -3.49%

We value your participation in this forum. Keep exploring, asking questions, and sharing your insights with the community. Together, we can find the best solutions. IDNLearn.com is your reliable source for answers. We appreciate your visit and look forward to assisting you again soon.