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A comparison of the convenience yield and interest-adjusted basis


  • Fouquau, Julien
  • Six, Pierre


The convenience yield is a major notion in commodity markets but this variable is unobservable. Consequently, two methods are generally used to test stylized facts regarding commodity convenience yields: the first method relies on a convenience yield filtered from derivative prices while the second one directly uses an observable proxy, the interest-adjusted basis. We believe that our study is the first to theoretically prove that these two methods do not provide the same results. We confirm this finding by analyzing the copper and oil markets.

Suggested Citation

  • Fouquau, Julien & Six, Pierre, 2015. "A comparison of the convenience yield and interest-adjusted basis," Finance Research Letters, Elsevier, vol. 14(C), pages 142-149.
  • Handle: RePEc:eee:finlet:v:14:y:2015:i:c:p:142-149
    DOI: 10.1016/

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    References listed on IDEAS

    1. Martin J. Nielsen & Eduardo S. Schwartz, 2004. "Theory of Storage and the Pricing of Commodity Claims," Review of Derivatives Research, Springer, vol. 7(1), pages 5-24.
    2. Bryan R. Routledge & Duane J. Seppi & Chester S. Spatt, 2000. "Equilibrium Forward Curves for Commodities," Journal of Finance, American Finance Association, vol. 55(3), pages 1297-1338, June.
    3. Geman, HĂ©lyette & Ohana, Steve, 2009. "Forward curves, scarcity and price volatility in oil and natural gas markets," Energy Economics, Elsevier, vol. 31(4), pages 576-585, July.
    4. Pierre Six, 2015. "Strategic commodity allocation," Quantitative Finance, Taylor & Francis Journals, vol. 15(1), pages 131-150, January.
    5. Jaime Casassus & Pierre Collin-Dufresne, 2005. "Stochastic Convenience Yield Implied from Commodity Futures and Interest Rates," Journal of Finance, American Finance Association, vol. 60(5), pages 2283-2331, October.
    6. Gary B. Gorton & Fumio Hayashi & K. Geert Rouwenhorst, 2013. "The Fundamentals of Commodity Futures Returns," Review of Finance, European Finance Association, vol. 17(1), pages 35-105.
    7. Nguyen, Duc Khuong & Sousa, Ricardo M. & Uddin, Gazi Salah, 2015. "Testing for asymmetric causality between U.S. equity returns and commodity futures returns," Finance Research Letters, Elsevier, vol. 12(C), pages 38-47.
    8. Kim, Soo-Hyun & Kang, Hyoung-Goo, 2014. "A new strategy using term-structure dynamics of commodity futures," Finance Research Letters, Elsevier, vol. 11(3), pages 282-288.
    9. Katelijne A. E. Carbonez & Van Thi Tuong Nguyen & Piet Sercu, 2012. "Remodelling the Working–Kaldor curve: the roles of scarcity, time to maturity and time to harvest," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 39(3), pages 459-487, July.
    10. Richard Heaney, 2006. "An empirical analysis of commodity pricing," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(4), pages 391-415, April.
    11. Constantin Mellios & Pierre Six, 2011. "The traditional hedging model revisited with a non-observable convenience yield," Post-Print hal-00659232, HAL.
    12. Constantin Mellios & Pierre Six, 2011. "The Traditional Hedging Model Revisited with a Nonobservable Convenience Yield," The Financial Review, Eastern Finance Association, vol. 46(4), pages 569-593, November.
    13. Schwartz, Eduardo S, 1997. " The Stochastic Behavior of Commodity Prices: Implications for Valuation and Hedging," Journal of Finance, American Finance Association, vol. 52(3), pages 923-973, July.
    14. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
    15. Gibson, Rajna & Schwartz, Eduardo S, 1990. " Stochastic Convenience Yield and the Pricing of Oil Contingent Claims," Journal of Finance, American Finance Association, vol. 45(3), pages 959-976, July.
    16. Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
    17. Symeonidis, Lazaros & Prokopczuk, Marcel & Brooks, Chris & Lazar, Emese, 2012. "Futures basis, inventory and commodity price volatility: An empirical analysis," Economic Modelling, Elsevier, vol. 29(6), pages 2651-2663.
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    More about this item


    Theory of storage; Commodity futures markets; Convenience yield; Interest-adjusted basis;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market


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