Net cost of carry

CAIA
#1

Have you guys calculated the net cost of carry (commodity futures)?

The convenience yield is relatively simple. E.g. oil spot $95, 3mo fut at $92. Funding costs at 3%; storage costs at 4% per year. (12/3)*(-3/95) = 0.03 + 0.04 - Convenience yield Hence, ConvYield = 19.6% pa.

Now, using 2013’s Schweser notes (book 2, page 48/49), they literally say: “Since the convenience yield is large and positive, this also implies the net cost of carry is negative” and spit out a formula that includes a 0.02 that nobody knows where it’s coming from!? net cost of carry = (0.03 + 0.02 - 0.196)*(3/12) < 0 net cost of carry = -0.0316 = - 3.2% My perception is that they are using 0.02 as the storage cost (which they stated at 0.04 before). Can anyone plz confirm:? thanks

#2

Is this a specific example in the book and did you forget to include some details? What .02 are you referring to?

#3

Hi Ramos, thanks for your post. I’ve added full details above.

#4

I think you’re assumption is correct because the cost of carry is (funding costs + storage costs - convenience yield)*T and (.03+.04-.1963)*(3/12) gives -.0316 as the book says. I reported as least 2 errata last year so it’s definitely possible this is just errata…send them an email.

#5

great. cheers man