Suppose that the price of crude oil follows a GBM with [Sigma]= 0.35 and the interest rate is forever fixed at r= 0.01. An oil field that harvests 1000 barrels of crude oil/day can be built for $150 245 216. What can you tell about the convenience yield from crude oil if it is known that it is optimal to build the oil field when the price of crude oil $68/barrel.

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The convenience yield from crude oil is the present value of the future cash flows from the oil fiel... View the full answer