According to equation (14) on P.183 of CFAI Text Vol 5, the forward price is : F(0,T) = Soxe^[(r+s)xT] s : storage cost In this equation, the storage cost is assumed to be paid at t = 0. While in Example 1 and EOC Q2 & Q3, the storage costs are assumed to be paid at the end of each period (monthly or quarterly). Is this discrtepant with equation (14) ?
Furthermore, can storage cost or lease rate be treated separately ? i.e., storage cost or lease rate is not incorporated in forward price equation (14) or equation (10), as follows : F(0,T) = Soxe^(rxT) + storage cost F(0,T) = Soxe^(rxT) - lease payment
Storage costs can be paid any time between initiation of contract and the end of the contract. You just need some algebraic manipulations to move the storage cost forward or backward. The equations in the second post look right to me.
AMA Wrote: ------------------------------------------------------- > Furthermore, can storage cost or lease rate be > treated separately ? i.e., storage cost or lease > rate is not incorporated in forward price equation > (14) or equation (10), as follows : > F(0,T) = Soxe^(rxT) + storage cost > F(0,T) = Soxe^(rxT) - lease payment I think the lease rate = (compensation for convenience yield) - (free from paying storage cost)
It seems to me that the storage cost or lease rate is incorporated in the forward price equation (14) or equation (10) is different from treating separately as in my 2nd post. I am confused !