Work

Risk-Free Rates and Convenience Yields Around the World

Year: 2026

Type: article

Abstract: ABSTRACT We infer risk‐free rates from index option prices to estimate safe asset convenience yields in 10 G11 currencies. Countries' convenience yields increase with the level of their interest rates, with U.S. convenience yields fifth largest. During financial crises, convenience yields grow, but the difference between United States and foreign convenience yields generally does not. Covered interest parity (CIP) deviations using our option‐implied rates are a similar size between the United States and each other country. A model in which convenience yields depend on domestic financial intermediaries, but CIP deviations reflect the funding costs of international arbitrageurs financed with dollar‐denominated debt, explains these results.

Source: The Journal of Finance

DOI: 10.1111/jofi.70045

Authors: William Diamond, Peter Van Tassel

Institutions: University of Wisconsin–Madison, University of Pennsylvania, Federal Reserve, Federal Reserve Bank of New York

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W4243700547

FWCI: 32.44

Cites: 34

Cited by: 37

Related to: 10