|Commodity Markets and Price Analysis|
|Instructor:||James (Jim) Vercammen|
|Office:||HA 268: ph. 604-827-3844
MCML 335: ph. 604-822-5667
|Office Hours:||See course website|
|Class Schedule:||MW 3:00 - 4:30 pm|
|Important Course Pages|
FRE 501 examines agricultural commodity prices from a structural and financial economics perspective. The course begins with the mechanics of trading commodity futures and options, and then continues with the theory of how futures and options prices are determined. The middle section of the course examines the properties of forward curves, the role of storage and hedging strategies for price risk management. The final component is devoted to empirical estimation: price trends, volatility and co-movement.
The course website can be access through http://canvas.ubc.ca
Course Support: Xiao Han (MFRE Alumni), firstname.lastname@example.org (Office hours: See course website)
By the end of the course, students will be able to:
- Describe the mechanics of trading commodity futures and options, and to explain the
- theoretical determinants of futures and option prices
- Use simple methods (binomial tree) and advanced methods (Black Scholes) to calculate the price of a commodity option
- Describe features of the forward curve for commodities (e.g., contango and backwardation) and solve for an array of short and long hedging problems
- Use Stata to estimate short and long term price trends for corn, wheat and other commodities
- Use Stata to estimate commodity price volatility
- Describe the determinants of commodity price volatility and co-movement
|Activity||Percent of Grade|
|#1 Distributed Sept. 13, due September 29||7.5%|
|#2 Distributed October 18, due December 1||7.5%|
|Lab (details provided separately)||10%|
|Midterm Exam Monday, Oct. 16||30%|
|Final Exam Friday, December 9||45%|
Academic Integrity and Plagiarism
All UBC students are expected to behave as honest and responsible members of an academic community. See http://www.calendar.ubc.ca/vancouver/index.cfm?tree=3,54,111,959
In addition, all students are expected to attend class regularly and to arrive on time. Please contact Prof. Vercammen or course assistant Xiao Han before class if you will be absent or late.
Reference List for On-Line Reader:
- Bodie, Zvi, Alex Kane, and Alan J. Marcus. 2011. Investments. New York: McGraw- Hill/Irwin.
- Brooks, Chris. 2014 Introductory Econometrics for Finance 3rd Edition. United Kingdom:
Cambridge University Press.
- Coulon, Michael, “Additional Notes: Introduction to Commodities and Reduced-Form Price
Models”, Princeton University unpublished class notes, downloaded June 12, 2017.
- Feldman, Barry and Hilary Till, “Backwardation and Commodity Futures Performance:
Evidence from Evolving Agricultural Markets”, The Journal of Alternative Investment,
Winter, 2006: pp. 1 – 16.
- Ncube, M., D. Tessema and D. Gurara “Volatility and Co-movement in Commodity Prices:
New Evidence”, African Development Bank Working Paper Series, No 205 – July
- Pfaffenzeller, Stephan. 2017. Primary Commodities and Economic Development. London
and New York: Routledge, (UBC On-line text).
- Slabinski, M. “What is Volatility Skew? | Everything You Need to Know”, Blog site;
November 4, 2015. https://www.dough.com/blog/volatility-skew
- Thraen., C. S. 2011. “Highly variable prices or excessive volatility? Is a supply management
program warranted? An Extension Dairy Economist’s Perspective.” Proceedings of the
NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market
Risk Management. St. Louis, MO.
- What is Grain Merchandising, Hedging and Basis Trading?, Unpublished/undated University
of Arkansas paper, downloaded June 12, 2017.
- Wisner, Robert N. and Don Hofstrand, “Grain Price Hedging Basics”, Ag Decision Maker, University of Iowa Extension Bulletin, July 2015, downloaded June 12, 2017.
|Week 1 Sept 6||Course intro and overview of futures||2 - 10|
|Week 2 Sept 11, 13||Margin accounts; Information and trading||10 – 14, 93 - 100|
|Assignment 1 distributed|
|Week 3 Sept 18, 20||Futures pricing theory||17 – 29, 31 - 46|
|Week 4 Sept 25, 27||Futures pricing theory (continued)||Use week 3 readings.|
|Assignment 1 due|
|Week 5 Oct 2, 4||Option contracts; Option prices (valuation)||47 - 69|
|Week 6 Oct 11||Midterm exam review|
|Week 7 Oct 16, 18||Midterm Exam; Introduction to hedging||14 – 17, 29 – 30, 101 - 117|
|Assignment 2 distributed|
|Week 8 Oct 23, 25||Hedging strategies; Delivery contracts||Use Week 7 readings|
|Week 9 Oct 30, Nov 1||Estimating trends in commodity prices||119 – 183|
|Week 10 Nov 6, 8||Estimating volatility and co- movement in commodity prices||184 - 256|
|Week 11 Nov 15||Estimating volatility and co- movement in commodity prices||Use Week 10 readings|
|Week 12 Nov 20, 22||Option prices, implied volatility; Black-Scholes||70 – 92, 257 - 265|
|Assignment 2 due|
|Week 13 Nov 27, 29||Technical analysis; Catch-up and review||No readings|