ABSTRACT
In the case of dividend-paying common stocks or stock portfolios, the dividend yield is a direct benefit of holding stocks. In commodities, such as heating oil, the convenience yield is usually an indirect benefit. Since stock index futures and currency futures are among the most popular derivative contracts, our time generalizing the no-payoff model will have its own payoffs. A forward contract is written on the stock without the dividends. This is the key issue in pricing forward contracts on dividend-paying stocks. The terminal stock price under the Total Stock Return Process will grow based upon the Capital Gains component and the Dividend Yield component. Direct costs appear in financial statements. Indirect costs are things like the opportunity cost of tying up one's money in commodities.
