quiz of lease rate

CFA Level III
#1

lease rate is the difference of A and B ?

#2

convenience yield (A) and storage costs (B)

#3

goodman2011 Wrote: ------------------------------------------------------- > lease rate is the difference of A and B ? Can you be any more cryptic? It’s storage costs minus convenience yield. You can also interpret it as the rate used to force the spot price and futures price to be equal, if interest costs are known.

#4

Suppose the continuously compounded convenience yield is c, proportional to the value of the commodity. The commodity lender saves l - c by not physi- cally storing the commodity; hence, the commodity borrower pays d = c - l, compensating the lender for convenience yield less storage cost. V5 184 A - B = convenience yield minus storage costs

#5

pfcfaataf Wrote: ------------------------------------------------------- > Suppose the continuously compounded convenience > yield is c, proportional to the value of the > commodity. The commodity lender saves l - c by not > physi- cally storing the commodity; hence, the > commodity borrower pays d = c - l, compensating > the lender for convenience yield less storage > cost. > V5 184 > > A - B = convenience yield minus storage costs Yeah my bad brah, I had it reverse

#6

The lease rate = commodity discount rate – growth rate the lease payment is essentially a dividend

#7

Recall that the cost-of-carry model is F 􏰃 Se (r􏰆c􏰂y)(T􏰂t ), where F is the futures price, S is the current spot price of the underlying commodity, r is the risk-free rate of return, c is the cost of storage, y is the convenience yield, and T 􏰂 t is the time to maturity of the contract. (Level III Volume 5 Alternative Investments, Risk Management, and the Application of Derivatives , 4th Edition. Pearson Learning Solutions 51). If you look at this footnote on page 51, to price a futures contract they are actually taking the storage costs minus convenience yield. So, it depends on whether you subtract or add the lease rate in the equation. Stalla adds the lease rate using (storage - convenience) while in the CFA book they subtract lease rate (convenience -storage). It can go either way.

#8

sure, it is similar to div yield, the lease rate (or convenience yield) good luck!

#9

lease for convenience, but with (storage) cost.

#10

By the core meaning: Lease rate = convenience yield - storage cost. Lease rate is the rate of lending out commodity. We minus the risk free return and lease rate as this is a trade off between the two. You can invest money to earn Rf or use money to buy commodity and lend out to earn lease rate.