Implied Storage and Convenience Yield in Futures Pricing

Summary

The discussion considers how a cost-of-carry model relates a futures price to the underlying spot price, interest rate, storage costs, convenience yield, and income yield. Its central point is that storage and convenience yield may be unobservable inputs. If these quantities are inferred from the traded futures price, they serve as implied parameters and make the model reproduce that price by construction.

If a trader instead supplies independent estimates for these inputs, the model price may differ from the market quote. Such a difference could indicate a pricing discrepancy or potential arbitrage, but the discussion does not establish an executable opportunity or account for transaction costs, financing, contract details, or uncertainty in the assumptions. The answer is therefore a concise explanation of calibration logic rather than a full test for arbitrage.

Key ideas

• A futures cost-of-carry model includes financing, storage, convenience yield, and income yield.
• Storage costs and convenience yield may be inferred rather than directly observed.
• Inputs implied from a futures quote make the model match that quote by construction.
• Independent input assumptions can produce a difference between modeled and traded prices.
• A model discrepancy alone does not establish an executable arbitrage.

Tags

# How to match future price from the market with the one computed with a model?


# How to match future price from the market with the one computed with a model?












I have a future quoted in the market. Let's say $50 price.

The price model of this future is :

S * Exp (rate + storage - convenience - yield)

How can I be sure that the model gives exactly the same price as the market ($50) and there is no arbitrage ?

Thank you in advance.

Cheers,

## Answer by Lliane (score 2)

https://quant.stackexchange.com/a/43145

How do you calculate storage and convenience ? Do you have your own assumptions ?

If you don't, storage and convenience (like repo) are non-observable parameters which are plugs that make `market price = model price`, they are implied from the market price of the future. Thus by construction your model price should be equal to the market price.

If you have your own assumptions, then market price and model price could differ, and there would be an arbitrage opportunity.

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