Introduction to Commodity Risk Management
By this point of the book we have covered many of the factors and the techniques for managing financial risk. The last area we will cover in this brief chapter is commodity risk. Commodity risk is the risk caused by the volatility of commodity prices. Commodities are generally grouped into two categories: agricultural commodities and metals. To this list we will also add weather—yes, it is possible to manage the economic effects of weather.
There are a couple of aspects that make managing the price risk of commodities unique. The first is that a much larger percentage of trading in the commodity markets is being done by market participants who actually want (or need) ...
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