Abstract:
Commodity is a marketable item usually use as inputs in productions of other goods such as crude oil, agricultural good, gold, etc. The price of commodity for each country usually depends on demand and supply of people in that country. However, there is a factor that effects the commodity price in economic called convenience yield, which is used to describe the benefit of holding a physical good, rather than the derivative product. The theory of storage tells us that the convenience yield varies inversely with the inventory of commodity. Since commodity price depend on level of the inventory, finding the covariance between commodity price and convenience yield can imply the inventory of commodity, which is an important factor for government to make policies and decisions in commodity price. This thesis offers a formula for a correlation coefficient between underlying commodity price and its convenience yield, which can be used to determine the inventory that is not observable from commodity market.