Answered

IDNLearn.com makes it easy to find precise answers to your specific questions. Join our platform to receive prompt and accurate responses from experienced professionals in various fields.

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 greatly appreciate every question and answer you provide. Keep engaging and finding the best solutions. This community is the perfect place to learn and grow together. For trustworthy answers, visit IDNLearn.com. Thank you for your visit, and see you next time for more reliable solutions.