A section in Futures chapter,
Net cost= storage costs - convenience yield
Net benefit= yield on the asset + convenience yield
While in the Commodity Chapter,
F=S*E^(risk free rate+storage cost-convenience yield)*T
I can understand that the convenience yield needed to be subtraded from the Storage cost. How come it can be added to the yield?
Thanks in advance!
If I have asset and selling in the future (in future contract) convenience yield I am gonna receive because until the expariation of the future contract I am the asset owner so I will get coupon/dividend/rent etc.
If I am planning to buy asset in the future I have to agreed now for the future date so other side will charge me with risk free rate and storage cost (because she/he reserved the asset for me so it is as a “favour” to store it) and deducted also the coupon/dividend/rent because I am not eligible to get it because I am not the owner of the underlying asset YET.
“Net benefit= yield on the asset + convenience yield” CV is positive because this is related to the asset holder and not for the future owner (long future holder)
“F=S*E^(risk free rate+storage cost-convenience yield)*T” this is what the future asset holder has to pay.CV will not be charged me because the asset owner is the one who has a benefit of holding the asset.
Clear now. thanks a lot for your help!