Financial Markets for Commodities

Financial Markets for Commodities

by Joel Priolon
Released April 2019
Publisher(s): Wiley-ISTE
ISBN: 9781786303622

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Book description

Agricultural, energy or mineral commodities are traded internationally in two market categories: physical markets and financial markets. More specifically, on the financial markets, contracts are negotiated, the price of which depends on the price of a commodity. These contracts are called derivatives (futures, options contracts, swaps).

This book presents, on the one hand, the characteristics of these derivatives and the markets on which they are traded and, on the other hand, those transactions that typically combine an action on the physical market and a transaction on the corresponding financial market.

The understanding of commodity financial markets mainly relies on the resources of economic analysis, especially the financial economy, because the use of this discipline is essential to understanding the major operations that are conducted daily by the operators of these markets: traders, producers, processors, financiers.

Table of contents

  1. Cover
  2. Preface
  3. Introduction
  4. 1 General Observations on the Physical Trading of Commodities
    1. 1.1. The standardization of commodities and commercial contracts
    2. 1.2. Price volatility of commodities
    3. 1.3. Important actors in the trading of agricultural commodities
    4. 1.4. Physical markets and financial markets
  5. 2 The Financial Commodity Markets
    1. 2.1. A financial instrument is a security or a contract that generates a series of financial flows
    2. 2.2. Physical markets and derivative financial markets
    3. 2.3. Large financial operations
  6. 3 Futures Contracts and Forward Contracts
    1. 3.1. Futures markets in 2013 and 2014
    2. 3.2. Derivative markets in 2016
    3. 3.3. An overview of futures contracts
    4. 3.4. Arbitrage operations and conditions for no arbitrage
    5. 3.5. Hedging operations
    6. 3.6. Speculation
    7. 3.7. Forward contracts
    8. 3.8. The pricing of futures and forwards
    9. 3.9. Commodity swaps
  7. 4 The Storage and Term Structure of Commodity Futures Prices
    1. 4.1. Essential concepts
    2. 4.2. Normal backwardation
    3. 4.3. The theory of storage
    4. 4.4. Futures markets and price volatility
    5. 4.5. Conclusion
  8. 5 Options Markets
    1. 5.1. The fundamental concepts
    2. 5.2. The determinants of the value of an option, the pricing of options
    3. 5.3. Models for estimating the value of an option
    4. 5.4. An example of a commodity option traded on an exchange
    5. 5.5. Conclusion
  9. 6 A Selective Review of Classic Literature in Economics
    1. 6.1. Holbrook Working
    2. 6.2. Leland L. Johnson
    3. 6.3. Jerome L. Stein: cash price and future price
    4. 6.4. Conclusion
  10. 7 A Very Selective Review of Modern Literature in Economics
    1. 7.1. The price dynamics for cash prices and future prices – a theoretical approach
    2. 7.2. Market failure: the basis does not always cancel itself out at maturity
    3. 7.3. An example of the destabilizing effect of optional hedging
    4. 7.4. Conclusion
  11. 8 Questions Surrounding Regulation
    1. 8.1. Dilemmas surrounding regulation
    2. 8.2. A broad overview of the evolution of regulation
    3. 8.3. High-frequency trading: a burning question
    4. 8.4. Conclusion
  12. Appendix: The Cox, Ross and Rubinstein model
    1. A.1. Additional information on the single period CRR model
    2. A.2. Hedging portfolio
    3. A.3. Elements on the CRR model with n periods
    4. A.4. Risk-neutral probability: some additional insight
  13. References
  14. List of Authors
  15. Index
  16. End User License Agreement

Product information

  • Title: Financial Markets for Commodities
  • Author(s): Joel Priolon
  • Release date: April 2019
  • Publisher(s): Wiley-ISTE
  • ISBN: 9781786303622