What is a Convenience Yield?
Convenience Yield refers to non-monetary benifits of holding an asset. Convenience yields are more difficult to measure and are more pronounced only in commodities, while they are small in other assets.
Convenience Yield
- Chinese name
- Convenience Yield
- Foreign name
- Convenience Yield
- Nature
- Economic nouns
- Find the time
- 1949
- Convenience Yield refers to non-monetary benifits of holding an asset. Convenience yields are more difficult to measure and are more pronounced only in commodities, while they are small in other assets.
- It is the adjustment of the holding cost in the forward no-arbitrage pricing model when there are market transaction restrictions. Reflects the market's expectations of future commodity availability.
- Convenience income refers to the possible income that investors hold when the spot creates a risk premium on futures. During the life of a futures contract, the greater the possibility of a shortage of commodities, the higher the convenience income. If the user of the goods has a large inventory, the possibility of a shortage of goods in the near future is very small, and the convenience yield will be relatively low. On the other hand, lower inventory results in higher convenience returns.
- Scholars at home and abroad have done a lot of research on the dynamic relationship between consumer commodity futures and spot prices. It is recognized that the core of the rationality of consumer commodity pricing lies in a correct understanding of convenience income. Convenience income has significant economic value in explaining the relationship between futures prices and spot prices, especially when consumer goods are at a premium. Evidence of the existence of convenience benefits was first discovered by WORKING in 1949 when studying the US wheat market. Through empirical analysis in 1991, BRENNAN found that the following relationship exists between the inventory of goods, spot prices and convenience income: when the inventory level is low, the spot price is relatively high and the convenience income is also relatively high; when the inventory level is high, Spot prices are relatively low and convenience returns are relatively low. CANTEKIN et al. Used crop commodities as empirical research objects, and reached the conclusion that convenience income is negatively correlated with the inventory level of commodities, revealing the predictive effect of inventory volume on commodity futures revenue, and quantifying the impact of inventory levels on convenience revenue. This shows that for general commodities, because the specific futures price is fixed in advance, the relationship between spot price and convenience income is naturally positively related. The price of derivative contracts with physical commodities as the underlying asset is not only the only source of uncertainty for commodity prices, but convenience income will also affect the price of the contract. Therefore, it is necessary and reasonable to introduce convenience income when researching the price of commodity derivative contracts. As a coal-derived contract, the value of coal resource mining rights is naturally affected by coal convenience income. Therefore, it is more in line with actual conditions to study the valuation of coal resource mining rights based on the changed convenience income.
- COONTER earlier defined convenience income, which defined convenience income as the present value of the expected earnings premium due to the convenience brought by a large amount of inventory. BREN-NAN defines convenience income as the value-added income stream naturally generated by physical goods. This value-added income stream is obtained by physical goods holders, rather than held by derivative contracts (such as futures and options) that use physical goods as the underlying asset. By. In fact, it is very obvious that physical goods holders can choose where to store and clean up the goods. Therefore, the definition of BRENNAN has basically become the standard definition of convenience income. In this way, as long as the source of the value-added income stream is defined, the convenience income is clearly defined. When BRENNAN et al. And PINDYCK et al. Evaluated real options (e.g., oil mining contracts, oil reserve assets, and mining asset values) with real assets (such as oil, copper, and natural gas) as the underlying assets, they believed that the value-added income stream was mainly composed of This part is composed of: first, the benefits that resource owners get from the temporary shortage of resources; and second, the benefits generated by maintaining convenient income production capacity. For example, coal resources are an exhaustive non-renewable resource, and their scarcity will continue to increase, which will increase the fluctuation and rise of coal prices. There are two main aspects of the benefits of maintaining its production capacity: Commodity producers cannot close or open production lines instantaneously, and need a certain inventory as a risk reserve. This is for energy production with strong asset specificity, long production cycles and high risks. This is especially true with development companies. For example, a coal chemical company using coal as a raw material, having coal inventory can ensure the continuous operation of the production line; After paying a certain maintenance cost, it is actually equivalent to giving the inventory producer an open option, which can be flexibly selected according to market conditions Production strategy and rapid production, to improve the speed of response to the market, in order to win the first opportunity and master the initiative. [1]