Commodity Option Pricing: A Practitioners Guide provides a thorough and mathematical introduction to the various models used in commodity option pricing. It both introduces the models used for commodities and, crucially, describes how practitioners in banks and hedge funds typically approach their calibration and implementation. Specifically, it introduces the various commodity areas a quantitative analyst, trader or structurer will be asked to cover, such as precious metals, base metals, energy (oil, gas and coal) and power, and explains the differences between the market conventions applicable to these areas. While the mathematical models for precious metals are similar to those for foreign currency spot markets, base metals introduce the concept of a strip of traded futures, while the energy markets combine the requirement for a futures based approach with a volatility surface more similar to that seen in equity markets. Power markets differ by yet another degree of complexity the impracticality of storing industrial amounts of electricity, which necessitates modelling incorporating spikes. For this reason, the book will introduce the various commodities in this order, beginning with the easiest and to progress to the more complex, together with the required mathematical models. The book is aimed at quantitative analysts and mathematically able traders and structurers either currently working in the area or aiming to make the transition into commodities from other asset classes, as well as academics who need to familiarize themselves with the industry conventions of the commodity markets.
Book Details:
- Author: Iain J. Clark
- ISBN: 9781119944515
- Year Published: 2013
- Pages: 342
- BISAC: BUS014000, BUSINESS & ECONOMICS/Investments & Securities / Commodities
About the Book and Topic:
Commodity Option Pricing: A Practitioners Guide provides a thorough and mathematical introduction to the various models used in commodity option pricing. It both introduces the models used for commodities and, crucially, describes how practitioners in banks and hedge funds typically approach their calibration and implementation. Specifically, it introduces the various commodity areas a quantitative analyst, trader or structurer will be asked to cover, such as precious metals, base metals, energy (oil, gas and coal) and power, and explains the differences between the market conventions applicable to these areas. While the mathematical models for precious metals are similar to those for foreign currency spot markets, base metals introduce the concept of a strip of traded futures, while the energy markets combine the requirement for a futures based approach with a volatility surface more similar to that seen in equity markets. Power markets differ by yet another degree of complexity the impracticality of storing industrial amounts of electricity, which necessitates modelling incorporating spikes. For this reason, the book will introduce the various commodities in this order, beginning with the easiest and to progress to the more complex, together with the required mathematical models. The book is aimed at quantitative analysts and mathematically able traders and structurers either currently working in the area or aiming to make the transition into commodities from other asset classes, as well as academics who need to familiarize themselves with the industry conventions of the commodity markets.
Unlike other asset classes, the various commodities typically encountered in the finance industry differ markedly from each other gold and silver can be stored quite safely and easily in bullion vaults, oil and gas can be stored but expensively in storage facilities, and electricity cannot be stored in any practical fashion on the industrial scale. These factors necessitate the construction of different models, in addition to the multiplicity of market instruments typically used to quote liquid financial securities in the markets. Practitioners in this area are therefore responsible for developing analytical tools that cover the entire commodities trading book from gold through to energy and electricity and need to be aware of the very different structural characteristics of the different commodities markets, as well as the similarities.
HOT TOPIC commodity markets have experienced a notable surge of popularity in the wake of the credit crunch and renewed investor appetite for tangible, physical assets. PRACTICAL FOCUS provides a mathematical discussion of modelling, calibration and implementation issues in a practice oriented context. AUTHOR EXPERIENCE the author has over 12 years experience in quantitative finance, and is a regular speaker on both FX and commodity derivatives and modelling topics.
About the Author
Dr. Iain J. Clark (London, UK) is Head of FX and Commodities Quantitative Analysis at the London office of Standard Bank. He has over 12 years experience as a front office quant, having previously worked at JP Morgan, BNP Paribas, Lehman Brothers and Dresdner Kleinwort, specializing in the practical application of techniques from applied mathematics, physics, and statistics to financial modelling. His work covers the full life cycle of model development, from requirements analysis and theoretical investigation through to practical software delivery using numerical analysis and optimisation for model calibration, and technologies such as C++ and Excel on the IT side. He holds a PhD in applied mathematics, an MSc in financial mathematics and a Graduate Diploma in statistics.