Options & Derivatives

Cost of Carry

The net cost of holding an asset until a future date, which determines the forward price.

Interest to fund the position, minus income received (dividends, yield), plus storage costs.

Each component pushes the forward in a predictable direction, which is why a dividend-rich index can have a forward below spot while a storable commodity has one well above.

Convenience yield is the commodity-specific term: a benefit to holding the physical asset now, behaving like a negative storage cost. It is what explains persistent backwardation in markets where physical availability matters.

Related terms

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