Convenience Yield Risk Premiums
UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Discipline Group
Research Seminars in Finance
Topic: Convenience Yield Risk Premiums
Speaker: Stefan Trueck, Macquarie University
Abstract: The convenience yield is an important risk factor for commodity derivatives, but very little is known about how convenience yield risk is priced. In this paper, we construct portfolios of commodity futures that track the convenience yield risk premium. Our empirical results for a variety of different commodities show that premiums are consistently positive, as suggested by an argument based on hedging demand. However, the magnitude of the premium varies strongly between groups of commodities. Such differences can be explained by different market structures. Our study has implications for the risk management of commodity positions and demonstrates the value of convenience yield risk premiums for investors. For grains, a risk-averse investor realizes monetary utility gains over a risk-free investment of up to 11\% per year from a trading strategy that tracks the premium.
A light lunch will be provided at 1p.m. Please RSVP for catering purposes to Mala Kapahi by 12 noon on Monday 8th May.
Date: Wednesday, 10th May 2017
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
Building 8
Dr Chau Chak Wing Building
Dr Chau Chak Wing Building
14 - 28 Ultimo Road, Ultimo
Co-ordinator: Adrian Lee (Ph: +61 2 9514 7765)
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)
