A Partial Equilibrium Model for the Convenience Yield Risk Premium

27 Pages Posted: 17 Sep 2010 Last revised: 23 May 2011

See all articles by Sami Attaoui

Sami Attaoui

NEOMA Business School

Vincent Lacoste

Groupe ESC Rouen

Pierre Six

Neoma Business School

Date Written: May 19, 2011

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.

Keywords: Convenience Yield, Risk Premium, Commodity Futures Markets, Commodity Risk Management, Commodity Derivatives Pricing, Samuelson Effect

JEL Classification: G13

Suggested Citation

Attaoui, Sami and Lacoste, Vincent and Six, Pierre, A Partial Equilibrium Model for the Convenience Yield Risk Premium (May 19, 2011). Available at SSRN: https://ssrn.com/abstract=1677953 or http://dx.doi.org/10.2139/ssrn.1677953

Sami Attaoui

NEOMA Business School ( email )

Boulevard André Siegfried - BP 215
Mont Saint Aignan, 76825
France

Vincent Lacoste

Groupe ESC Rouen ( email )

1, rue du Maréchal Juin - BP 188
Mont Saint Aignan Cedex, Normandy 76825
France

Pierre Six (Contact Author)

Neoma Business School ( email )

1, rue du Maréchal Juin - BP 188
Mont Saint Aignan Cedex, Normandy 76825
France

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