The “Displaystyle r” is the risk-free return constantly compounded, and T is the time until maturity. The intuition behind this result is that, since you want to own the asset at the time T, there should be no difference in a perfect capital market between buying the asset today and keeping it and buying the futures contract and taking over the delivery. Therefore, both approaches must cost the same cost in terms of present value. For proof of arbitration, why this is the case, see the price rationality below. If you look at the example above, you now assume that the initial price of Andy`s house is $100,000 and that Bob enters into a contract in advance to buy the house for a year from today. But since Andy knows he can sell for $100,000 and put the product in the bank, he wants to be compensated for the late sale. Suppose the risk-free R (bank interest rate) for one year is 4%. The bank`s money would reach $104,000 risk-free. So Andy wants the contract to be worth at least $104,000 in a year – opportunity costs are covered. Consumer goods are generally raw materials used as a source of energy or in a production process, for example. B crude oil or iron ore.
Users of these consumer goods may feel that there is an advantage to physically keeping the asset in stock instead of keeping an asset in advance. These benefits include the ability to “take advantage” of temporary bottlenecks (hedge against) and the ability to maintain a production process[1] and are called convenience yields. As far as consumer assets are concerned, the “spot-forward” relationship is: y % p . one. “Display style y” %p.a. is the convenience yield over the duration of the contract. Because the return on convenience is high for the asset holder, but not for the asset holder, it can be modeled as a kind of “dividend return.” However, it is important to note that convenience performance is not a solvent element, but rather reflects market expectations for future product availability. If users have low inventory on the product, this means a greater likelihood of bottlenecks, which means greater comfort yield.