Abstract
We focus in this article on the impact of the convenience yield on optimal hedging in a futures market. Our investor can freely negotiate the underlying spot commodity and trade in the bond market. We undertake our study in a setting where the three state variables, namely the convenience yield, the spot price and interest rates, as well as the market price of risk evolve randomly over time. We achieve various decompositions of optimal demands to highlight the particular role of each investment instruments regarding the optimal hedge. Despite the thorough description of the risks of the economy, we obtain closed-form solutions, which further facilitate the assessment of the behavior of our investor.
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