Commodity Risk Management: Theory and Application

by Poitras; Geoffrey

• ISBN13: 9780415879293
• ISBN10: 0415879299
• Edition: 1st
• Format: Hardcover
• Copyright: 2013-01-22
• Publisher: Routledge

Summary

The central theme is to demonstrate commodity risk managementdecisions require an in depth understanding of speculative strategies. To this end, this book aimsto provide an unified treatment of important concepts and techniques that are useful in applyingderivative securities in the management of risk arising in commodity markets. Some of thetechniques examined are well known, such as the replication strategies associated with put-call parityarbitrage. However, extensions to specific situations and the connection to speculative tradingstrategies are not. In actual situations, commodity risk management often involves dealing withuncertainty associated with both price and quantity, an aspect that is either ignored or given too briefa treatment in conventional texts that typically emphasize the pricing aspects of derivative securitycontracts.This book is not intended to provide a comprehensive introduction to derivative securities. Thereare many excellent US sources that contain the relevant background material. This book aims toproceed beyond an introductory treatment of derivative securities, in order to have additional spaceand time to deal with more advanced topics. By design, this involves approaching the subject matterfrom a somewhat different perspective. A central theme of the book revolves around thecomplementarity of the risk management decision problem and the speculative trader's decisionproblem. More precisely, it is demonstrated that optimal risk management decisions involve aspeculative component; optimal risk management involves making speculative decisions.