ICM265-Commodity Derivatives

Module Provider: ICMA Centre
Number of credits: 10 [5 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2020/1

Email: r.wichmann@icmacentre.ac.uk

Type of module:

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Summary module description:

This module provides an interesting insight into the commodity derivatives markets. It examines the aspects of pricing and trading physical derivatives, with emphasis on the energy and shipping (freight) sectors. The course is designed using real-life trading examples, stimulating students, who wish to follow a sales and trading career, to approach derivatives pricing from first principles.

Aims:

• 
  

  Introduce the unique characteristics of commodities?Ìý

  
  


• 
  

  Help students understand pricing of commodity forwards and options from first principlesÌý

  
  


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  Present the processes of selling, trading, clearing and hedging commodity derivatives positions?Ìý

  
  


• 
  

  Introduce?a?variety?of?commodity?option trading strategies and their Greek sensitivitiesÌý

  
  


• 
  

  Help students understand the challenges of being a commodity derivatives market makerÌý

  
  

Assessable learning outcomes:

By the end of the module, it is expected that students will be able to:??Ìý

• Describe the main features and mechanisms of commodity markets?Ìý


• Understand the differences between pricing financial and physical derivatives?Ìý


• Use arbitrage principles as the main intuition to price commodity futures and optionsÌý


• Evaluate the payoff profiles of all main commodity option strategiesÌý

Understand the mechanisms of the oil industry and stages of the oil supply chainÌý

• Critically evaluate the most up to date energy derivatives reportsÌýÌý


• Access the latest market information to create hedging strategies using commodity derivatives?Ìý


• Describe the mechanisms of the freight derivatives market and key characteristics of FFAs (Forward Freight Agreements)?Ìý

Additional outcomes:

The module encourages students to revisit the concepts of macroeconomic theory and understand the importance of the physical markets when pricing commodity derivatives.Ìý

Outline content:

Topic 1: Introduction to Commodity MarketsÌý

Topic 2: Pricing Commodity ForwardsÌý

Topic 3: The Commodity Futures CurveÌý

Topic 4:ÌýCrude Oil.ÌýMarket Fundamentals. Refining. Crude Products.?Ìý

Topic 5: Natural GasÌý

Topic 6: Precious Metals. Base Metals.ÌýAgriculturalÌýCommodities.?Ìý

Topic 7: The Shipping MarketÌý

Topic 8: Pricing Commodity OptionsÌý

Topic 9: Basic Option Strategies?Ìý

Topic 10:ÌýThe GreeksÌý

Brief description of teaching and learning methods:

1. Lectures: Five two -hour lectures cover the topicsÌý

2. Seminars: students meet in small groups for a series of seminars. Seminar discussions are based on non-assessed coursework set by the instructors.Ìý

Summative assessment- Examinations:

One 1.5-hour written examination (70% of final mark)

Summative assessment- Coursework and in-class tests:

One 1-hour Multiple-choice Test (30% of final mark)

Formative assessment methods:

Penalties for late submission:

Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspxÌý

Assessment requirements for a pass:
A minimum mark of 50%

Reassessment arrangements:

Re-assessment in August by written examinationÌý

Additional Costs (specified where applicable):

1) Required text books: £60.00 2) Specialist equipment or materials: 3) Specialist clothing, footwear or headgear: 4) Printing and binding: 5) Computers and devices with a particular specification:?£15?6) Travel, accommodation and subsistence:Ìý

Last updated: 4 April 2020