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Commodity derivatives: markets and applications

Author: Schofield, Neil C. Series: Wiley finance Publisher: Wiley, 2007.Language: EnglishDescription: 315 p. : Graphs ; 25 cm.ISBN: 9780470019108Type of document: BookBibliography/Index: Includes bibliographical references and index and glossary
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
Main Collection
Print HG6024 .A3 S346 2007
(Browse shelf)
001231723
Available 001231723
Total holds: 0

Includes bibliographical references and index and glossary

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Commodity Derivatives Markets and Applications Contents Preface Acknowledgements About the Author 1 An Introduction to Derivative Products 1.1 Forwards and futures 1.2 Swaps 1.3 Options 1.4 Derivative pricing 1.4.1 Relative Value 1.5 The spot--forward relationship 1.5.1 Deriving forward prices: market in contango 1.5.2 Deriving forward prices: market in backwardation 1.6 The spot--forward--swap relationship 1.7 The spot--forward--option relationship 1.8 Put--call parity: a key relationship 1.9 Sources of value in a hedge 1.10 Measures of option risk management 1.10.1 Delta 1.10.2 Gamma 1.10.3 Theta 1.10.4 Vega 2 Risk Management 2.1 Categories of risk 2.1.1 Defining risk 2.1.2 Credit risk 2.2 Commodity market participants: the time dimension xv xvii xix 1 2 3 4 7 8 8 8 10 11 16 18 18 19 19 21 22 23 27 27 28 29 29 viii Contents 2.2.1 Short-dated maturities 2.2.2 Medium-dated maturities 2.2.3 Longer-dated exposures 2.3 Hedging corporate risk exposures 2.4 A framework for analysing corporate risk 2.4.1 Strategic considerations 2.4.2 Tactical considerations 2.5 Bank risk management 2.6 Hedging customer exposures 2.6.1 Forward risk management 2.6.2 Swap risk management 2.6.3 Option risk management 2.6.4 Correlation risk management 2.7 View-driven exposures 2.7.1 Spot-trading strategies 2.7.2 Forward trading strategies 2.7.3 Single period physically settled "swaps" 2.7.4 Single or multi-period financially settled swaps 2.7.5 Option-based trades: trading volatility 3 Gold 3.1 The market for gold 3.1.1 Physical Supply Chain 3.1.2 Financial Institutions 3.1.3 The London gold market 3.1.4 The price of gold 3.1.5 Fixing the price of gold 3.2 Gold price drivers 3.2.1 The supply of gold 3.2.2 Demand for gold 3.2.3 The Chinese effect 3.3 The gold leasing market 3.4 Applications of derivatives 3.4.1 Producer strategies 3.4.2 Central Bank strategies 4 Base Metals 4.1 Base metal production 4.2 Aluminium 4.3 Copper 4.4 London metal exchange 4.4.1 Exchange-traded metal futures 4.4.2 Exchange-traded metal options 4.4.3 Contract specification 4.4.4 Trading 29 30 30 30 31 31 31 32 32 33 33 33 33 34 34 35 35 35 36 41 41 41 42 42 44 44 45 45 48 51 51 54 55 60 69 69 70 73 75 76 76 77 77 Contents ix 4.4.5 Clearing 4.4.6 Delivery 4.5 Price drivers 4.6 Structure of market prices 4.6.1 Description of the forward curve 4.6.2 Are forward prices predictors of future spot prices? 4.7 Applications of derivatives 4.7.1 Hedges for aluminium consumers in the automotive sector 4.8 Forward purchase 4.8.1 Borrowing and lending in the base metal market 4.9 Vanilla option strategies 4.9.1 Synthetic long put 4.9.2 Selling options to enhance the forward purchase price 4.9.3 "Three way" 4.9.4 Min­max 4.9.5 Ratio min­max 4.9.6 Enhanced risk reversal 4.10 Structured option solutions 4.10.1 Knock-out forwards 4.10.2 Forward plus 4.10.3 Bonus forward 4.10.4 Basket options 5 Crude Oil 5.1 The value of crude oil 5.1.1 Basic chemistry of oil 5.1.2 Density 5.1.3 Sulphur content 5.1.4 Flow properties 5.1.5 Other chemical properties 5.1.6 Examples of crude oil 5.2 An overview of the physical supply chain 5.3 Refining crude oil 5.3.1 Applications of refined products 5.4 The demand and supply for crude oil 5.4.1 Proved oil reserves 5.4.2 R/P ratio 5.4.3 Production of crude oil 5.4.4 Consumption of crude oil 5.4.5 Demand for refined products 5.4.6 Oil refining capacity 5.4.7 Crude oil imports and exports 5.4.8 Security of supply 5.5 Price drivers 5.5.1 Macroeconomic issues 5.5.2 Supply chain considerations 78 80 81 83 83 85 86 86 87 88 89 89 90 92 93 94 95 95 95 96 96 97 101 101 101 102 102 102 103 103 103 104 105 106 106 106 108 108 109 109 111 112 114 114 117 x Contents 5.5.3 Geopolitics 5.5.4 Analysing the forward curves 5.6 The price of crude oil 5.6.1 Defining price 5.6.2 The evolution of crude oil prices 5.6.3 Delivered price 5.6.4 Marker crudes 5.6.5 Pricing sources 5.6.6 Pricing methods 5.6.7 The term structure of oil prices 5.7 Trading crude oil and refined products 5.7.1 Overview 5.7.2 North Sea oil 5.7.3 US crude oil markets 5.8 Managing price risk along the supply chain 5.8.1 Producer hedges 5.8.2 Refiner hedges 5.8.3 Consumer hedges 6 Natural Gas 6.1 How natural gas is formed 6.2 Measuring natural gas 6.3 The physical supply chain 6.3.1 Production 6.3.2 Shippers 6.3.3 Transmission 6.3.4 Interconnectors 6.3.5 Storage 6.3.6 Supply 6.3.7 Customers 6.3.8 Financial institutions 6.4 Deregulation and re-regulation 6.4.1 The US experience 6.4.2 The UK experience 6.4.3 Continental European deregulation 6.5 The demand and supply for gas 6.5.1 Relative importance of natural gas 6.5.2 Consumption of natural gas 6.5.3 Reserves of natural gas 6.5.4 Production of natural gas 6.5.5 Reserve to production ratio 6.5.6 Exporting natural gas 6.5.7 Liquefied natural gas 6.6 Gas price drivers 6.6.1 Definitions of price 6.6.2 Supply side price drivers 6.6.3 Demand side price drivers 120 121 121 121 122 122 123 124 124 125 126 126 128 135 137 137 142 144 149 149 150 150 150 150 151 152 152 153 153 153 154 154 155 155 156 156 157 158 158 159 160 160 161 161 162 164 Contents xi 6.6.4 The price of oil 6.7 Trading physical natural gas 6.7.1 Motivations for trading natural gas 6.7.2 Trading locations 6.7.3 Delivery points 6.8 Natural gas derivatives 6.8.1 Trading natural gas in the UK 6.8.2 On-the-day commodity market 6.8.3 Exchange-traded futures contracts 6.8.4 Applications of exchange-traded futures 6.8.5 Over-the-counter natural gas transactions 6.8.6 Financial/Cash-settled transactions 7 Electricity 7.1 What is electricity? 7.1.1 Conversion of energy sources to electricity 7.1.2 Primary sources of energy 7.1.3 Commercial production of electricity 7.1.4 Measuring electricity 7.2 The physical supply chain 7.3 Price drivers of electricity 7.3.1 Regulation 7.3.2 Demand for electricity 7.3.3 Supply of electricity 7.3.4 Factors influencing spot and forward prices 7.3.5 Spark and dark spreads 7.4 Trading electricity 7.4.1 Overview 7.4.2 Markets for trading 7.4.3 Motivations for trading 7.4.4 Traded volumes: spot markets 7.4.5 Traded volumes: forward markets 7.5 Nord pool 7.5.1 The spot market: Elspot 7.5.2 Post spot: the balancing market 7.5.3 The financial market 7.5.4 Real-time operations 7.6 United states of america 7.6.1 Independent System Operators 7.6.2 Wholesale markets in the USA 7.7 United kingdom 7.7.1 Neta 7.7.2 UK trading conventions 7.7.3 Load shapes 7.7.4 Examples of traded products 7.7.5 Contract volumes 7.7.6 Contract prices and valuations 164 166 166 167 167 168 168 168 169 171 173 176 181 181 182 183 184 184 185 186 188 190 191 193 193 196 196 196 196 197 197 197 198 199 199 199 200 200 201 203 203 204 205 206 206 207 xii Contents 7.8 Electricity derivatives 7.8.1 Electricity forwards 7.8.2 Electricity Swaps 207 207 209 213 213 214 215 215 215 215 216 217 217 218 219 219 220 222 222 225 225 226 231 231 232 232 233 235 236 237 241 241 241 242 243 243 244 244 245 246 246 246 247 8 Plastics 8.1 The chemistry of plastic 8.2 The production of plastic 8.3 Monomer production 8.3.1 Crude oil 8.3.2 Natural gas 8.4 Polymerisation 8.5 Applications of plastics 8.6 Summary of the plastics supply chain 8.7 Plastic price drivers 8.8 Applications of derivatives 8.9 Roles of the futures exchange 8.9.1 Pricing commercial contracts 8.9.2 Hedging instruments 8.9.3 Source of supply/disposal of inventory 8.10 Option strategies 9 Coal 9.1 The basics of coal 9.2 The demand for and supply of coal 9.3 Physical supply chain 9.3.1 Production 9.3.2 Main participants 9.4 The price of coal 9.5 Factors affecting the price of coal 9.6 Coal derivatives 9.6.1 Exchange-traded futures 9.6.2 Over-the-counter solutions 10 Emissions Trading 10.1 The science of global warming 10.1.1 Greenhouse gases 10.1.2 The carbon cycle 10.1.3 Feedback loops 10.2 The consequences of global warming 10.2.1 The Stern Report 10.2.2 Fourth assessment report of the IPCC 10.3 The argument against climate change 10.4 History of human action against climate change 10.4.1 Formation of the IPCC 10.4.2 The Earth Summit 10.4.3 The Kyoto Protocol Contents 10.4.4 From Kyoto to Marrakech and beyond 10.5 Price drivers for emissions markets 10.6 The EU emissions trading scheme 10.6.1 Background 10.6.2 How the scheme works 10.6.3 Registries and logs 10.6.4 National Allocation Plans (NAPs) 10.7 Emission derivatives 11 Agricultural Commodities and Biofuels 11.1 Agricultural markets 11.1.1 Physical supply chain 11.1.2 Sugar 11.1.3 Wheat 11.1.4 Corn 11.2 Ethanol 11.2.1 What is ethanol? 11.2.2 History of ethanol 11.3 Price drivers 11.3.1 Weather 11.3.2 Substitution 11.3.3 Investor activity 11.3.4 Current levels of inventory 11.3.5 Protectionism 11.3.6 Health 11.3.7 Industrialising countries 11.3.8 Elasticity of supply 11.3.9 Genetic modification 11.4 Exchange-traded agricultural and ethanol derivatives 11.5 Over-the-counter agricultural derivatives 12 Commodities Within an Investment Portfolio 12.1 Investor profile 12.2 Benefits of commodities within a portfolio 12.2.1 Return enhancement and diversification 12.2.2 Asset allocation 12.2.3 Inflation hedge 12.2.4 Hedge against the US dollar 12.3 Methods of investing in commodities 12.3.1 Advantages and disadvantages 12.4 Commodity indices 12.4.1 Explaining the roll yield 12.5 Total return swaps 12.6 Structured investments 12.6.1 Gold-linked notes 12.6.2 Capital guaranteed structures xiii 249 249 252 252 253 253 254 254 261 261 261 262 262 262 263 263 263 264 264 265 265 265 265 265 266 266 266 266 267 269 269 270 270 270 271 271 271 271 272 273 274 277 277 277 xiv 12.6.3 Combination structures 12.6.4 Non-combination structures 12.6.5 Collateralised Commodity Obligations 12.7 Analysing investment structures Glossary Notes Bibliography Index Contents 278 281 282 285 287 299 303 305

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