"You should note that since we have taken a short position in the futures contract, the price we will receive for selling the equity index in 240 days will be reduced by the convenience yield associated with having a long position in the underlying asset. If there were no cash flows associated with the underlying asset, the price would be higher."
Incorrect
Convenience yield refers to non-monetary benefits from holding an asset in short supply.
A monetary benefit from holding the asset will also decrease the no-arbitrage futures price because the net cost of holding is reduced.
Friday, April 1, 2011
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