Commodity Derivatives : Markets and Applications

by Schofield, Neil C.

• ISBN13: 9780470019108
• ISBN10: 0470019107
• Format: Hardcover
• Copyright: 2007-12-17
• Publisher: WILEY

Summary

In Commodity Derivatives: Markets and Applications, Neil Schofield provides a complete and accessible reference for anyone working in, or studying commodity markets and their associated derivatives. Dealing primarily with over the counter structures, the book provides extensive coverage of both hard and soft commodities, including gold, crude oil, electricity, plastics, emissions and agriculturals.Using structures unique to the individual market, each chapter includes an explanation of the commodity and an analysis of its physical market, discussion on the typical patterns of demand and supply and the main factors that will influence the price of the commodity, and the main products.Each chapter focuses on how the products could be used along the physical supply chain and seeks to identify the main market risks and how they can be hedged. The book then brings into perspective how the structuring banks hedge their own resultant exposure and examines the attraction of OTC investment structures for the wholesale market.Commodity Derivatives: Markets and Applications is essential reading for those wishing to learn about the main features of the commodity markets, the mechanics of derivatives, and how they are applied.

Author Biography

Neil C. Schofield is currently the head of Financial Markets Training at Barclays Capital, where he has global responsibility for all aspects of the bank’s product-related training. As part of the job, he regularly delivers training on a wide range of subjects in commodities, fixed income, equity, foreign exchange and credit.
Prior to joining Barclays, he was a director at Chisholm Roth, a financial training company, where he delivered seminars to a blue-chip client base around the world. He has also worked in a training capacity for Chase Manhattan bank from 1988 to 1997. The author was appointed as a visiting fellow at ICMA Centre, Reading University, England in April 2007.

Table of Contents

Preface

Acknowledgements

About the Author

An Introduction to Derivative Products

Forwards and futures

Swaps

Options

Derivative pricing

Relative Value

The spot-forward relationship

Deriving forward prices: market in contango

Deriving forward prices: market in backwardation

The spot-forward-swap relationship

The spot-forward-option relationship

Put-call parity: a key relationship

Sources of value in a hedge

Measures of option risk management

Delta

Gamma

Theta

Vega

Risk Management

Categories of risk

Defining risk

Credit risk

Commodity market participants: the time dimension

Short-dated maturities

Medium-dated maturities

Longer-dated exposures

Hedging corporate risk exposures

A framework for analysing corporate risk

Strategic considerations

Tactical considerations

Bank risk management

Hedging customer exposures

Forward risk management

Swap risk management

Option risk management

Correlation risk management

View-driven exposures

Spot-trading strategies

Forward trading strategies

Single period physically settled "swaps."

Single or multi-period financially settled swaps

Option-based trades: trading volatility

Gold

The market for gold

Physical Supply Chain

Financial Institutions

The London gold market

The price of gold

Fixing the price of gold

Gold price drivers

The supply of gold

Demand for gold

The Chinese effect

The gold leasing market

Applications of derivatives

Producer strategies

Central Bank strategies

Base Metals

Base metal production

Aluminium

Copper

London metal exchange

Exchange-traded metal futures

Exchange-traded metal options

Contract specification

Trading

Clearing

Delivery

Price drivers

Structure of market prices

Description of the forward curve

Are forward prices predictors of future spot prices?

Applications of derivatives

Hedges for aluminium consumers in the automotive sector

Forward purchase

Borrowing and lending in the base metal market

Vanilla option strategies

Synthetic long put

Selling options to enhance the forward purchase price

"Three way."

Min-max

Ratio min-max

Enhanced risk reversal

Structured option solutions

Knock-out forwards

Forward plus

Bonus forward

Basket options

5 Crude Oil

The value of crude oil

Basic chemistry of oil

Density

Sulphur content

Flow properties

Other chemical properties

Examples of crude oil

An overview of the physical supply chain

Refining crude oil

Applications of refined products

The demand and supply for crude oil

Proved oil reserves

R/P ratio

Production of crude oil

Consumption of crude oil

Demand for refined products

Oil refining capacity

Crude oil imports and exports

Se

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