Cost Of Carry
Cost of carry is the net expense of holding an asset from today until a specified future date, reflecting financing, storage, and insurance costs minus any income the asset produces (such as dividends) or convenience yield. In derivatives markets, it helps explain the relationship between spot prices and futures prices.
Example: If the current spot price of crude oil is $70 per barrel and financing costs over a one-year horizon are 4% while storage costs are $2 per barrel per year and no income is expected, the rough cost of carry is approximately 6.857% for the year, implying a one-year futures price around $74.80 per barrel.
💬 Comments