Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy

Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy

by Hélyette Geman
Released January 2009
Publisher(s): Wiley
ISBN: 9780470694251

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Book description

Commodities represent today the fastest growing markets worldwide. Historically misunderstood, generally under- studied and under- valued, certainly under- represented in the literature, commodities are suddenly receiving the attention they deserve.

Bringing together some of the best authors in the field, this book focuses on the risk management issues associated with both soft and hard commodities: energy, weather, agriculturals, metals and shipping. Taking the reader through every part of the commodities markets, the authors discuss the intricacies of modelling spot and forward prices, as well as the design of new Futures markets. The book also looks at the use of options and other derivative contract forms for hedging purposes, as well as supply management in commodity markets. It looks at the implications for climate policy and climate research and analyzes the various freight derivatives markets and products used to manage shipping and freight risk in a global commodity world.

It is required reading for energy and mining companies, utilities' practitioners, commodity and cash derivatives traders in investment banks, CTA's and hedge funds

Table of contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Contents
  5. Preface
  6. About the Editor
    1. HÉLYETTE GEMAN
  7. About the Contributors
  8. 1: Structural Models of Commodity Prices
    1. 1.1 INTRODUCTION
    2. 1.2 A COMMODITY TAXONOMY
    3. 1.3 FUNDAMENTAL MODELS FOR STORABLE COMMODITIES
    4. 1.4 NON-STORABLE COMMODITIES
    5. 1.5 SUMMARY
    6. 1.6 REFERENCES
  9. 2: Forward Curve Modelling in Commodity Markets
    1. 2.1 INTRODUCTION
    2. 2.2 FORWARD CURVE MODELS FOR NON-SEASONAL COMMODITIES
    3. 2.3 THE SEASONAL FORWARD CURVE MODEL AND ITS EXTENSIONS
    4. 2.4 PRINCIPAL COMPONENT ANALYSIS OF A FORWARD CURVE
    5. 2.5 FORWARD CURVE INDICATORS
    6. 2.6 CONCLUSIONS
    7. 2.7 REFERENCES
  10. 3: Integrating Physical and Financial Risk Management in Supply Management
    1. 3.1 INTRODUCTION
    2. 3.2 A PRIMER ON PREVIOUS SUPPLY MANAGEMENT CONTRACTING LITERATURE
    3. 3.3 A MODELING FRAMEWORK AND A SIMPLE ILLUSTRATIVE CASE
    4. 3.4 RECENT CONTRIBUTIONS TO THE OPTIMAL CONTRACTING LITERATURE
    5. 3.5 SOME OPEN RESEARCH QUESTIONS AND IMPLICATIONS FOR PRACTICE
    6. 3.6 REFERENCES
  11. 4: The Design of New Derivative Markets
    1. 4.1 INTRODUCTION
    2. 4.2 DETERMINANTS OF SUCCESS OF NEW DERIVATIVE MARKETS
    3. 4.3 PRICE DISCOVERY
    4. 4.4 TRADING, CLEARING, AND MARGINING
    5. 4.5 MARKET INTEGRITY
    6. 4.6 MARKET RECOVERY
    7. 4.7 MARKET OVERSIGHT
    8. 4.8 CASE STUDIES
    9. 4.9 CONCLUSION
    10. 4.10 REFERENCES
  12. 5: Risk Premia of Electricity Futures: A Dynamic Equilibrium Model
    1. 5.1 INTRODUCTION
    2. 5.2 THE DYNAMIC EQUILIBRIUM MODEL
    3. 5.3 COMPARATIVE STATICS
    4. 5.4 EMPIRICAL STUDY
    5. 5.5 CONCLUSION
    6. 5.6 REFERENCES
  13. 6: Measuring Correlation Risk for Energy Derivatives
    1. 6.1 INTRODUCTION
    2. 6.2 CORRELATION
    3. 6.3 PERTURBING THE CORRELATION MATRIX
    4. 6.4 CORRELATION VAR
    5. 6.5 SOME EXAMPLES
    6. 6.6 DISCUSSION AND CONCLUSIONS
    7. 6.7 REFERENCES
  14. 7: Precaution and a Dismal Theorem: Implications for Climate Policy and Climate Research
    1. 7.1 INTRODUCTION
    2. 7.2 A NEW SOURCE OF CONCERN: WEITZMAN'S DISMAL THEOREM
    3. 7.3 IMPLICATIONS OF THE “DISMAL THEOREM”
    4. 7.4 SOME CONCLUDING REMARKS
    5. 7.5 REFERENCES
  15. 8: Incentives for Investing in Renewables
    1. 8.1 INTRODUCTION AND BACKGROUND
    2. 8.2 SUBSIDIES FOR ENERGY
    3. 8.3 THE MODEL
    4. 8.4 STATISTICAL ESTIMATIONS
    5. 8.5 RISK ANALYSIS
    6. 8.6 CONCLUSIONS
    7. 8.7 REFERENCES
  16. 9: Hedging the Risk of an Energy Futures Portfolio§
    1. 9.1 MAPPING PORTFOLIOS TO CONSTANT MATURITY FUTURES
    2. 9.2 THE PORTFOLIO AND ITS KEY RISK FACTORS
    3. 9.3 IDENTIFYING THE KEY RISK FACTORS
    4. 9.4 HEDGING THE PORTFOLIO RISK
    5. 9.5 CONCLUSIONS
    6. 9.6 REFERENCES
  17. 10: Spark Spread Options when Commodity Prices are Represented as Time Changed Processes
    1. 10.1 SPARK SPREAD OPTIONS
    2. 10.2 TIME CHANGE IN A NUTSHELL
    3. 10.3 TIME CHANGE AND COMMODITY PRICES
    4. 10.4 AN APPLICATION TO PJM ELECTRICITY AND NYMEX NATURAL GAS
    5. 10.5 CONCLUSIONS AND FURTHER RESEARCH
    6. 10.6 APPENDIX A: MODELLING SPECIFICATION IN THE MULTIVARIATE CASE
    7. 10.7 APPENDIX B: ALTERNATIVE MODELLING SPECIFICATIONS IN THE UNIVARIATE CASE
    8. 10.8 REFERENCES
  18. 11: Freight Derivatives and Risk Management: A Review
    1. 11.1 INTRODUCTION
    2. 11.2 FORWARD FREIGHT AGREEMENTS
    3. 11.3 FREIGHT FUTURES
    4. 11.4 “HYBRID” (CLEARED) FFAs
    5. 11.5 FREIGHT OPTIONS
    6. 11.6 EMPIRICAL RESEARCH ON FREIGHT DERIVATIVES
    7. 11.7 CONCLUSION
    8. 11.8 REFERENCES
  19. 12: Mean-Reversion and Structural Breaks in Crude Oil, Copper, and Shipping
    1. 12.1 INTRODUCTION
    2. 12.2 FUNDAMENTALS OF COPPER, CRUDE OIL, AND SHIPPING
    3. 12.3 DEFINING MEAN-REVERSION
    4. 12.4 DATASET AND UNIT ROOT TESTS
    5. 12.5 CONCLUSION
    6. 12.6 REFERENCES
  20. 13: Managing Agricultural Price Risk in Developing Countries*
    1. 13.1 THE LIBERALIZATION CONTEXT
    2. 13.2 INCIDENCE OF RISK EXPOSURE
    3. 13.3 INSTRUMENTS AND PROBLEMS
    4. 13.4 PRICE RISK MANAGEMENT IN THE DEVELOPING COUNTRY SUPPLY CHAIN
    5. 13.5 CONCLUDING COMMENTS
    6. 13.6 REFERENCES
  21. 14: Gaining Exposure to Emerging Markets in Institutional Portfolios: The Role of Commodities
    1. 14.1 INTRODUCTION
    2. 14.2 ASSET MARKETS AND ECONOMIC GROWTH
    3. 14.3 ARE EMERGING MARKETS EQUITY MARKETS AND COMMODITY MARKETS INTEGRATED?
    4. 14.4 IMPLICATIONS FOR THE INVESTMENT POLICY OF INSTITUTIONAL INVESTORS
    5. 14.5 CONCLUSION
    6. 14.6 REFERENCES
  22. 15: Case Studies and Risk Management in Commodity Derivatives Trading
    1. 15.1 INTRODUCTION
    2. 15.2 INSTITUTIONAL RISK MANAGEMENT
    3. 15.3 PROPRIETARY-TRADING RISK MANAGEMENT
    4. 15.4 HEDGE-FUND RISK MANAGEMENT
    5. 15.5 FUND-OF-HEDGE-FUNDS DIVERSIFICATION
    6. 15.6 MARKET RISK MANAGEMENT
    7. 15.7 CONCLUSION
    8. 15.8 REFERENCES
  23. Index

Product information

  • Title: Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy
  • Author(s): Hélyette Geman
  • Release date: January 2009
  • Publisher(s): Wiley
  • ISBN: 9780470694251