Convenience Yield

Posted in Finance, Accounting and Economics Terms, Total Reads: 318
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Definition: Convenience Yield

While holding an underlying a product or a physical good or a physical asset, sometimes a benefit or premium is obtained. This premium is called convenience yield. It does not include any benefit over a contract or derivative product.


Many times there are irregular market movements in the market like inverted market, in such cases the holding of such a physical good or a security becomes more profitable compared to owning the contract or derivative instrument because of increase in demand of the product compared o investing in the market.

 

For example, in 2008 as the market crashed due to economic slowdown and recession, the prices of gold moved up by at least 20 percent. So this increase in prices of such a physical gold dut to volatility in the market is called convenience yield.


Advantage:

• Compare returns of physical good with market in volatility period

 

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