Commodity Derivatives: A Guide for Future Practitioners
by Paul E. Peterson (Author)

About the Author
Paul E. Peterson is a Clinical Professor of Finance at the University of Illinois at Urbana-Champaign. His primary focus is futures and options markets, particularly in relation to commodity prices and risk management. Other interests include marketing practices and pricing issues.

About this book
Commodity Derivatives: A Guide for Future Practitioners describes the origins and uses of these important markets. Commodities are often used as inputs in the production of other products, and commodity prices are notoriously volatile. Derivatives include forwards, futures, options, and swaps; all are types of contracts that allow buyers and sellers to establish the price at one time and exchange the commodity at another.
These contracts can be used to establish a price now for a purchase or sale that will occur later, or establish a price later for a purchase or sale now. This book provides detailed examples for using derivatives to manage prices by hedging, using futures, options, and swaps. It also presents strategies for using derivatives to speculate on price levels, relationships, volatility, and the passage of time. Finally, because the relationship between a commodity price and a derivative price is not constant, this book examines the impact of basis behaviour on hedging results, and shows how the basis can be bought and sold like a commodity.
The material in this book is based on the author’s 30-year career in commodity derivatives, and is essential reading for students planning careers as commodity merchandisers, traders, and related industry positions. Not only does it provide them with the necessary theoretical background, it also covers the practical applications that employers expect new hires to understand. Examples are coordinated across chapters using consistent prices and formats, and industry terminology is used so students can become familiar with standard terms and concepts. This book is organized into 18 chapters, corresponding to approximately one chapter per week for courses on the semester system.  

Brief contents
CHAPTER 1. INTRODUCTION
    What is a Commodity?
    What is a Derivative?
CHAPTER 2. TRADING FUTURES AND OPTIONS
    Pit Trading
    Electronic Trading
CHAPTER 3. UNDERSTANDING AND INTERPRETING FUTURES PRICES
    How Futures Prices Are Quoted
    Measures of Trading Activity
    Interpreting Price Differences: Time, Space, and Form
CHAPTER 4. MARGINS, CLEARING, DELIVERY, AND FINAL SETTLEMENT
    Margins in Futures Trading
    Margin Account Example
    Final Settlement via Delivery
    Final Settlement via Cash Settlement
CHAPTER 5. MARKET REGULATION
    Futures as Contracts
    Contract Specifications
    Regulation by Exchanges
    Regulation by the Federal Government
    Self-Regulation by the Industry
    Applications in Other Sectors and Countries
    Appendix 5.1
CHAPTER 6. HEDGING WITH FUTURES
    The Role of Correlation
    Hedging Against a Price Increase
    More on the Role of Correlation: An Example from the Corn Market
    Price Changes vs. Prices Levels: The Importance of Returns
CHAPTER 7. HEDGING AND THE BASIS
    Hedging and Basis Changes
    Long Hedging and Basis Behavior
    Short Hedging and Basis Behavior
CHAPTER 8. HEDGING ENHANCEMENTS
    Types of Hedges
    Rolling a Hedge
    Cross-Hedging
CHAPTER 9. PROFIT MARGIN HEDGING AND INVERSE HEDGING
    Profit Margin Hedging
    Inverse Hedging
CHAPTER 10. HEDGING AND BASIS TRADING
    Redefining the Basis and the Cash Price
    Commercial Hedging
CHAPTER 11. BASIS TRADING AND ROLLING A HEDGE
    Rolling a Hedge to Capture a Favorable Basis
    Spread Impact on Hedging Results
CHAPTER 12. SPECULATION IN FUTURES
    Speculation vs. Investment
    Speculative Styles
    Commitments of Traders
    Speculative Participation in Commodity Futures
CHAPTER 13. INTRODUCTION TO OPTIONS ON FUTURES
    How Options Work
    Options on Futures
    Options on Actuals
CHAPTER 14. OPTION PRICING
    The Black Model
    Put-Call Parity
    Option Sensitivity and the Greeks
    Summary
CHAPTER 15. PROFIT TABLES AND PROFIT DIAGRAMS
    Futures and Cash Positions: Linear Profits
    Options Positions: Nonlinear Profits
    Discussion
CHAPTER 16. HEDGING WITH OPTIONS
    Option-Based Hedging Strategies
    Delta-Neutral Hedging
    Synthetic Futures and Options
CHAPTER 17. SPECULATING WITH OPTIONS
    Intrinsic Value Strategies
    Time Value Strategies
    Volatility Strategies
    Spread Strategies
CHAPTER 18. COMMODITY SWAPS
    Swaps and Forwards
    Swap Features and Applications
    The Market for Commodity Swaps
Index

Pages: 280 pages
Publisher: Routledge; 1 edition (April 15, 2018)
Language: English
ISBN-10: 0765645378
ISBN-13: 978-0765645371