Skip navigation
Skip navigation

Approximation for convenience yield in commodity futures pricing

Heaney, Richard

Description

The pricing of commodity futures contracts is important both for professionals and academics. It is often argued that futures prices include a convenience yield, and this article uses a simple trading strategy to approximate the impact of convenience yields. The approximation requires only three variables-underlying asset price volatility, futures contract price volatility, and the futures contract time to maturity. The approximation is tested using spot and futures prices from the London...[Show more]

dc.contributor.authorHeaney, Richard
dc.date.accessioned2015-12-13T22:26:33Z
dc.date.available2015-12-13T22:26:33Z
dc.identifier.issn0270-7314
dc.identifier.urihttp://hdl.handle.net/1885/73559
dc.description.abstractThe pricing of commodity futures contracts is important both for professionals and academics. It is often argued that futures prices include a convenience yield, and this article uses a simple trading strategy to approximate the impact of convenience yields. The approximation requires only three variables-underlying asset price volatility, futures contract price volatility, and the futures contract time to maturity. The approximation is tested using spot and futures prices from the London Metals Exchange contracts for copper, lead, and zinc with quarterly observations drawn from a 25-year period from 1975 to 2000. Matching Euro-Market interest rates are used to estimate the risk-free rate. The convenience yield approximation is both statistically and economically important in explaining variation between the futures price and the spot price after adjustment for interest rates.
dc.publisherJohn Wiley & Sons Inc
dc.sourceJournal of Futures Markets
dc.titleApproximation for convenience yield in commodity futures pricing
dc.typeJournal article
local.description.notesImported from ARIES
local.description.refereedYes
local.identifier.citationvolume22
dc.date.issued2002
local.identifier.absfor150201 - Finance
local.identifier.ariespublicationMigratedxPub3738
local.type.statusPublished Version
local.contributor.affiliationHeaney, Richard, College of Business and Economics, ANU
local.bibliographicCitation.issue10
local.bibliographicCitation.startpage1005
local.bibliographicCitation.lastpage1017
local.identifier.doi10.1002/fut.10036
dc.date.updated2015-12-11T08:23:02Z
local.identifier.scopusID2-s2.0-0036349216
CollectionsANU Research Publications

Download

There are no files associated with this item.


Items in Open Research are protected by copyright, with all rights reserved, unless otherwise indicated.

Updated:  19 May 2020/ Responsible Officer:  University Librarian/ Page Contact:  Library Systems & Web Coordinator