Commodity arbitrage

CFA Level III Portfolio Management
#1

Hi,

In the schweser book, they first mention that if there ared storage costs then the no-arbitrage forward price is F >=S0e^(rf + lambda)T

Then they mention on another page that for the investor who does not earn the convenience yield, cash and carry arbitrage implies that:

F <=S0e^(rf + lambda)T

Can anyone please clarify this? I try looking at older posts I couldn’t find something helpful!

Thx Guys!

#2

Just go back to the books and look for the range of no arbitrage prices (there is a upper and lower bound) and the definitions of convenience yield, storage costs, and the lease rate. And the relationship between the lease rate and the storage costs / convenience yield.

#3

Soe(RF+storage costs-less convience yield)^T