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A partial equilibrium model for the convenience yield risk premium

Author

Listed:
  • Sami Attaoui

    (Pôle Finance Responsable - Rouen Business School - Rouen Business School)

  • Vincent Lacoste

    (Pôle Finance Responsable - Rouen Business School - Rouen Business School)

  • Pierre Six

    (Pôle Finance Responsable - Rouen Business School - Rouen Business School)

Abstract

This papers develops a partial equilibrium model of the convenience yield risk premium. Contrary to the previous literature, the risk premium is computed explicitely and endogenously. We provide a decomposition of the convenience yield risk premium in terms of the volatility of the convenience yield as well as in terms of the sensitivity of the marginal utility of investors to the movements of the convenience yield. This decomposition enables us to assess the impact of the risk aversion and investment horizon of investors on the futures contracts' basis and on the term structure of volatility for our illustration carried out in the case of the copper market.

Suggested Citation

  • Sami Attaoui & Vincent Lacoste & Pierre Six, 2011. "A partial equilibrium model for the convenience yield risk premium," Post-Print hal-00657816, HAL.
    • Handle: RePEc:hal:journl:hal-00657816
    as

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