Upper and Lower Bounds On commodty pricing

Bounds keep coming up in things but arent necesarily explicitly described in the text with exception of one phrase

From Text

“Moreover the upper bound in equation 15 depends on the storage costs, but not the convenience yield.”

It seems to me like a rule of thumb is, if you subtract it (i.e convenience yield, lease rate) it establishes a lower bound for the no arbitrage price range, if you add it (storage), it establishes an upper bound for the no arb price range.

  • = upper
  • = lower…

Is that accurate?

rf + storage - convenience < F0 < rf + storage.

e^ anything is ALWAYS positive

and a smaller number on the exponent would provide a smaller value.

Waht do you think of the rule of thumb though? Additive items are upper bound subtracted items are lower bounds?

looks right.

but realize like in one of the previous questions … they could throw in a reduction in convenience yield suddenly.

you need to realize then that the lower bound will shift upwards and the range would narrow.