Optionality and Daily Dynamics of Convenience Yield Behavior: An Empirical Analysis

Ahmet E. Kocagil

Journal of Financial Research, 2004, vol. 27, issue 1, 143-158

Abstract: In this article I empirically examine the daily convenience yield behavior for six commodity markets (crude oil, heating oil, gasoline, wheat, corn, and copper). The results illustrate that convenience yield behavior can be statistically explained within an option pricing framework. However, because one of the assumptions of the standard call option formula is not fully satisfied by the observed convenience yield series, an alternative option—exchange option—may be more appropriate for modeling the daily convenience yield behavior. Furthermore, I empirically test two hypotheses on convenience yield behavior. The results confirm the assertion that the convenience yield is increasing in marginal production costs. In addition, the findings offer limited support for the hypothesis that the convenience yield is decreasing in the serial autocorrelation of spot prices. The observed switch in the sign of regression coefficients as the order of autocorrelation increases is attributed to the probable presence of mean reversion in these markets.

Date: 2004
References: View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://doi.org/10.1111/j.1475-6803.2004.00082.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:27:y:2004:i:1:p:143-158

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0270-2592

Access Statistics for this article

Journal of Financial Research is currently edited by Jayant Kale and Gerald Gay

More articles in Journal of Financial Research from Southern Finance Association Contact information at EDIRC., Southwestern Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().