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  • Introduction To Commodities

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    Meng Ji
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    This document provides an overview of commodity derivatives, including: - The types of commodities that are derivatives underlyings, such as energy, metals, agriculture, and weather. - The market participants that trade commodity derivatives, such as energy companies, oil companies, airlines, and hedge funds. - The various commodity derivative products, including spots, futures, forwards, swaps, swaptions, and options. - Some specifics of commodity derivatives compared to other asset classes, such as non-standardized contracts and multiple underlyings.

    Original Description:

    A brief introduction to the commodity products and related valuation issues.

    Original Title

    Introduction to Commodities

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    © Attribution Non-Commercial (BY-NC)

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    This document provides an overview of commodity derivatives, including: - The types of commodities that are derivatives underlyings, such as energy, metals, agriculture, and weather. - The market participants that trade commodity derivatives, such as energy companies, oil companies, airlines, and hedge funds. - The various commodity derivative products, including spots, futures, forwards, swaps, swaptions, and options. - Some specifics of commodity derivatives compared to other asset classes, such as non-standardized contracts and multiple underlyings.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    14 views10 pages

    Introduction To Commodities

    Uploaded by

    Meng Ji
    This document provides an overview of commodity derivatives, including: - The types of commodities that are derivatives underlyings, such as energy, metals, agriculture, and weather. - The market participants that trade commodity derivatives, such as energy companies, oil companies, airlines, and hedge funds. - The various commodity derivative products, including spots, futures, forwards, swaps, swaptions, and options. - Some specifics of commodity derivatives compared to other asset classes, such as non-standardized contracts and multiple underlyings.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 10

    Commodity Derivatives Pitfalls and embedded Derivatives

    May 10th, 2012

    Table of Contents
    Type

    of commodities Market participants Various products Specificities vs. other asset classes Market data Specific products Additional procedures (power curves building) Embedded Derivatives

    Page 2

    Type of Commodities
    Energy
    Crude oil Natural Gas Coal Refined products
    Heating oil Gasoline Jet / kerosene LPG

    Electricity (PJM, ERCOT, NYISO, ISONE, CAISO) Agricultural


    Coffee, soy, corn, cotton, cocoa Pork bellies Precious: gold, silver, platinum, palladium Non-precious: iron, copper, aluminum

    Metals

    Weather (HDD, CDD, Precipitation) Freight Emissions (CO2, SOx, NOx)


    Page 3

    Market Participants
    Energy

    Companies (AES, Dynegy, First Wind, PPL, PEPCO, Constellation, El Paso) Oil Companies (Hess, HollyFrontier, Marathon, BP) Airlines (Jet Blue, Spirit Airlines, Hedge funds (RenRe Reinsurance Company (Weather Derivative)

    Page 4

    Various Products
    Spot

    physical (not a derivative but we got some in our samples) Futures (not OTC, just looking up the price) Forwards Swaps Swaptions Options

    Vanilla Exotic

    Asian Spread

    Page 5

    Commodity derivatives specificities


    Non

    standardized contracts Multiple underlyings (referencing futures or spot average of platts Gas Daily, IFERC or highway diesel published by the DOE) Futures or forwards representing the expected value of the underlying explain clearly the 2/3 1/3 approximation for oil and The next slides should be several examples

    Page 6

    Market data
    Kiodex curves Kiodex Vol surface quoted as a function of delta

    Page 7

    Specific products
    Heat

    rate options Libor GOFO Power swaptions Storage and transportation options (louis dreyfus)

    Page 8

    Additional procedures
    New audit guidelines needed to do a lot more around difference resolution and inputs Particularly for commodities, the source of differences is market data For non observable data, we had to review the clients methodology power curve shaping

    Page 9

    Embedded derivatives

    Page 10

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