Section 6.5 (2nd edition): "The key insight, as in the pencil example, **is that the lease payment is a dividend.** If we borrow the asset, we have to pay the lease rate to the lender, just as with a dividend-paying stock. If we buy the asset and lend it out, we receive the lease payment. Thus, the formula for the forward price with a lease market is

F(0,T) = S(0)*exp[(r - δ)*T] (6. 10)

Tables 6.7 and 6.8 verify that this formula is the no-arbitrage price by performing the cash-and-carry and reverse cash-and-carry arbitrages. In both tables we tail the position in order to offset the lease income.

The striking thing about Tables 6.7 and 6.8 is that on the surface they are exactly like Tables 5.6 and 5.7, which depict arbitrage transactions for a dividend-paying stock. In an important sense, however, the two sets of tables are quite different. **With the stock, the dividend yield, δ, is an observable characteristic of the stock, reflecting payment received by the owner of the stock whether or not the stock is loaned. **

With pencils, by contrast, the lease rate, δ = α - g, is income earned only if the pencil is loaned. In fact, notice in Tables 6.7 and 6.8 that the arbitrageur never stores the commodity! Thus, equation (6.10) holds whether or not the commodity can be, or is, stored."

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