Oil convenience yields estimated under demand/supply shock |
| |
Authors: | William T Lin Chang-Wen Duan |
| |
Institution: | (1) Department of Banking and Finance, Tamkang University, Tamkang, Taiwan |
| |
Abstract: | This paper extends the call option model of Milonas and Thomadakis (1997) to estimate oil convenience yields with futures
prices. We define the business cycle of a seasonal commodity with demand/supply shocks and find that the convenience yield
for crude oil exhibits seasonal behavior. The convenience yield for West Texas Intermediate (WTI) crude oil is the highest
in the summer, while that for Brent crude oil is the highest in the winter. This implies that WTI crude oil is more sensitive
to high summer demand and that Brent crude oil is more sensitive to shortages in winter supply. Convenience yields are negatively
related to the inventory level of the underlying crude oil and positively related to interest rates due to the business cycle.
We also show that convenience yields may explain price spread between WTI crude oil and Brent crude oil. Our computed convenience
yields are consistent with Fama and French (1988) in that oil prices are more volatile than futures prices at low inventory
level, verifying the Samuelson (1965) hypothesis that future prices are less variables than spot prices at lower inventory
levels.
|
| |
Keywords: | Keyword" target="_blank">Keyword Business cycle Convenience yield Demand/supply shock Theory of storage Two-period model |
本文献已被 SpringerLink 等数据库收录! |