Storage and Hedging Costs
About the Lecture
The lecture Storage and Hedging Costs by Edu Pristine is from the course Archiv - Financial Markets and Products. It contains the following chapters:
- Storage and Carry Markets
- Storage Costs and Forward Prices
- Pricing with convenience
- No-Arbitrage with Convenience
- Hedging costs
- Strip and Strack Hedges
Author of lecture Storage and Hedging Costs
Edu Pristine
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Excerpts from the accompanying material
... that may be stored is said to be in a carry market. Reasons for storage. ...
... to each commodity If storage is to occur, the forward price is at least ... Where (0,T) is the future value of storage costs for one ...
... for both the financial cost of carry (interest) and the physical cost of carry (storage). With storage costs, the forward term structure can be steeper than the interest term structure Convenience Yield. Some holders of a commodity receive benefits from physical ownership ...
... price range within which there is no arbitrage is: Where c is the continuously compounded convenience yield. The convenience yield produces a ...
... and effective annual priced storage costs are 10% of the ...
... Now suppose the holder of the asset realizes a convenience yield of ...
... spot price of oil in July 2008 is $70/bbl or $120/bbl? Our natural exposure is short, therefore hedge long. Direct hedge, ...
... not the only component. In general, our production costs rise/fall with sensitivity of 0.72 (beta=0.72) to oil. Each crude oil contract is on 1,000bbls. Suppose S0=108 and F=105. Now, how many contracts do we use to hedge? ...
... periods as well In a “stack hedge”, we enter near-term contracts sufficient to cover the present value of future obligations ...
... may be stored is said to be in a carry market. Reasons for storage: There is ...
... If storage is to occur, the forward price is at least Where λ(0,T) is the future value of storage costs for one unit of the commodity ...
... for both the financial cost of carry (interest) and the physical cost of carry (storage). With storage costs, the forward term structure can be steeper than the interest term structure. Convenience Yield: Some holders of a commodity receive benefits from physical ownership ...
... within which there is no arbitrage is: Where c is the continuously compounded convenience yield. The convenience yield produces a no-arbitrage range rather than ...
... 4.6%, and effective annual priced storage costs are 10% of the ...
... 0.5 = $2.37. Now suppose the holder of the asset realizes a convenience yield of ...
... of oil in July 2008 is $70/bbl or $120/bbl? Our natural exposure is short, therefore hedge long. Direct hedge, β = 1. N=15/1*1 = 15 contracts ...
... the only component. In general, our production costs rise/fall with sensitivity of 0.72 (beta=0.72) to oil. Each crude oil contract is on 1,000bbls. Suppose S0=108 and F=105. Now, how many contracts do we use to hedge? Cross hedge, β ...
... periods as well In a “stack hedge”, we enter near-term contracts sufficient to cover the present value of future obligations ...
