CONVENIENCE YIELD AND COMMODITY MARKETS1

This article explains the role of the convenience yield in the relationships linking spot and futures prices in commodity derivatives markets. First, this variable restores the non arbitrage relationship between the prices of the underlying asset and the derivative instrument. Second, it allows establishing connections between commodities and other assets. Third, it explains why firms store at an apparent loss. The convenience is however a controversial concept. Indeed, the absence of direct evidence for this quantity signifies, first that it is necessary to address the issue of estimating it and second, that it can be accused of being an ad hoc construction. Moreover, in spite of an early interest for this concept, there is no real consensus on its definition. This article aims at gathering all the reasonable explanations which were proposed trough time in the literature