convenience yield, net costs, net benefits

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If there are net costs: FP = S(1+rf)^t + (storage costs - convenience yield)
If there are net benefits: FP = S(1+rf)^t - (yield on asset + convenience yield)
But if there are both you have FP = S(1+rf)^t + (storage costs - convenience yield) - (yield on asset + convenience yield).
If you do the math out, that means you would be subtracting convenience yield twice (because you have two convenience yield terms and both have a negative sign). Is that correct–to subtract it twice??
 
you cannot have both net benefits and net costs. you would net them out first - and depending on the sign of the net figure you either have a benefit or a cost….
then subtract the benefit, add the cost.
That’s why it is call NET…
 
I’m gonna do what my SG says: subtract the convenience yield.
 
They use the word “net” for a reason, killer.
Similar to reporting the funded status of a pension on a balance sheet, you only report the “net” amount as either an asset or a liability; using this logic, you’re going to “net” out the costs and benefits and get one “net” number.
 
I think you are right…. I think it CY = yield on assets - storage cost
i.e. take the net of the benefits and cost and plug that into the formula….
FP = S(1+fr)^t - CY
please someone correct me if my reasoning is wrong
 
CPK and I used the word “net” four times each in our post.
That’s gotta be a good sign for me come Saturday.
Yes, I am procrastinating on studying like you would not believe.
 
so for those contango/backwardation questions you just add the costs, subtract the benefits, arrive at a positive number (net costs) or a negative number (net benefits) and then subtract the conveneince yield?
 
do not know enough about all that. But when I see Net - that is what I would do!
 
lots of overthinking going on here ………………..wat if i promised to deliver some widget in 1 yr ………n we are talking bout the price …….im going to charge u a price X but wait up u say this is a special widget that somehow attracts the opposite (or same if thats wat floatrs ur boat) then i got to charge u less cuz i will be receiving the benefit of the widget in the meantime ………………..conversely if it drives away frenz then man oh man u gfot to pay me more ………………..
 
Remember your Net Costs would increase/decrease your futures price… if you have a negative number (i.e. higher convenience that costs)… convenience yield would decrease your futures price (there was a sample question on this)…. just compare the spot and the results of your calculation… if the result is less than spot…then it’s backwardation if higher you are in contango
 
I am a little bit unsure on this actually and also want to clarify if below is right:
If there is a yield on asset, normally it does not involve storage cost. (Same vice versa)
We do not need storage cost for a bond. And we can’t get interest/dividend by storing gold/copper.
So there can only be either:
net cost = storage cost - convenience yield
or
net benefit = asset yield + convenience yield
Also, remember to take future values for NB and NC:
FP = S(1+rf)^t + FV(NC)
FP = S(1+rf)^t - FV(NB)
 
punter,
i was originally thinking of it the same way as you. i was getting confused because if you have both asset yields and sotrage costs you have benefits and costs. so i was adding both and ending up with 2 convenience yields. but thats not correct to do because those are net numbers. so first find the net amount. then subtract the convenenice yield to lower the future price.
 
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