Convenience Yield
The non-cash benefit of holding physical inventory.
Name the object before manipulating it.
A physical unit can keep a refinery running or meet an unexpected order; that operational value behaves like a yield.
The non-cash benefit of holding physical inventory.
State the governing relationship.
Notation and units
Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.
Draw the boundary of the claim.
Definitions, units and information sets are fixed before the mathematical relationship is applied.
Rates and volatilities use decimal units and time uses year fractions unless stated otherwise.
The relationship is local to its stated assumptions and should not be extrapolated mechanically.
“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN
Connect the definition to an observable.
Explains basis behaviour and embeds scarcity in carry models.
Translate the concept into a risk question.
State the convention, identify the observable and ask which COMM risk remains after the proposed hedge.
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