Commodities and Commodity Derivatives

 

"The tutor Helyette displayed an impressive knowledge of the industry and the theories associated with financial instruments"

Anne-Marie Gardner - Commodities, RBS
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Course Outline

The current explosion of activity in commodity markets - expressed by the amount of capital flowing into this asset class and the remarkable growth of hybrids, structured notes and commodities indexes - makes this course essential for all those needing a thorough and detailed understanding of both spot and derivative transactions. The programme will cover fundamental issues such as volume risk, mean-reversion, the forward curve, and the theory of storage. Plain-vanilla and exotic options on commodities will be analysed, as well as a real options approach to energy physical assets. Lastly, different ways of investing in commodities will be presented and discussed, as well as the virtues of holding commodity baskets to diversify a portfolio and hedge against inflation.

All delegates will receive a copy of Professor Geman's book, "Commodities and Commodity Derivatives: Modelling and Pricing for Agriculturals, Metals and Energy".

Who The Course is For

  • Commodity traders
  • Hedge fund managers
  • Investment bankers
  • Energy company risk managers
  • Insurance companies

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Prior Knowledge

Some basic knowledge of finance will be required. All fundamentals on commodities will be reviewed.


This program is eligible for 16 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.


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Day One

Spot and Forward Commodity Markets in Detail

  • Price formation in commodities: the massive arrival and rapid withdrawal of new players
  • Theory of storage and forward curves in detail
  • Understanding the impact of inventory and commodity price volatility
  • The role of shipping markets: the remarkable spikes in freight indices and their recent collapse

Metal Markets

  • Zinc, copper, nickel, lead
  • The impact of the London Metal Exchange rules
  • Precious metals: is Gold returning to its role as a shelter currency?

Energy Markets

  • Coal and its large reserves
  • Natural gas markets; modelling and understanding the role of seasonality
  • Crude oil prices and its new developments

Case Study: Modelling the dynamics of commodity forward curves: seasonality and stochasticity. The Borovkova-Geman model applied to crude oil and natural gas.

 

Day Two

Financial and Physical Options in Commodities - Investing in Commodities

  • Electricity and its unique features
  • Agricultural commodities: the old and the new
  • Ethanol and biofuels revisited
  • Water as the next commodity
  • Commodity cross correlation and the implications for risk management
  • The unique features of commodity volatilities in spot and option prices
  • Managing the specific risks from electricity derivatives
  • Spread options in commodities: differences from other asset classes and how to model them (crush spreads, sparkspreads, darkspreads)
  • Valuation of physical assets in the energy industry
  • Investing in commodities:
    • The major commodity indexes
    • The choice of weights, rebalancing rule and time-to-maturity of the futures
    • The importance of the shape of the forward curve in the roll yield
  • Commodity Structured Notes and ETFs

Case Study: Investing in shares of oil and mining companies: how good is the performance? Mid cap versus large caps.

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