Why are we all of a sudden dealing with ranges? Why aren’t we dealing with no arbitrage prices? Please provide a NUMERICAL example
Man, this is the essence of the whole chapter!!!
I don’t have any numerical example, but there cannot be a single point estimate of a no arbitrage price because of convenience yields. 100,000 barrels of oil would be more valuable to an airline company as opposed to a retail chain, since the airlines could actually use the oil as an input (although they actually use jet fuel, just assume they can use it).
just memorize it. they will ask you whether the upper range contains the convenience yield or the lower range or what not.
skipE, youre gonna murder this test son, I feel it.
the EOC questions seem relatively straightforward for this reading - agree with SkipE99, just memorize this formula along with lease rate and you will be tip-top.
sheeeiiii,sure doesnt feel like it.
sorry, i am coming upt with the range again… it is not so straightforward to me but i want to understand it. the upper range is higher and does not include the convenience yield. the lower yield includes the convenience yield is therefore lower. does this mean that the parties that derive a value from the convenice yield are willing to have a lower future price?
Let’s say 2 parties are selling futures contracts on oil, assuming they both hold the underlying: Exxon and a hedge fund. Exxon could sell you a contract at a lower price because they can use the oil in some other fashion if the demand for oil futures dries up. The hedge fund on the other hand, will have a stockpile of oil drums sitting outside their office with no use for it.
SkipE99 Wrote: ------------------------------------------------------- > sheeeiiii,sure doesnt feel like it. I don’t think it is possible to feel ready Skip. There is too much ambiguity and contradiction in the curriculum and also the test is kind of a lottery. You are ready and you will pass.