Course:FRE501

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Commodity Markets and Price Analysis
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FRE 501
Section:
Instructor: Jim Vercammen
Email: james.vercammen@ubc.ca
Office: HA 268
Office Hours: Mon,Wed 4:30-5:15pm or by appointment
Class Schedule: Class: Mon, Wed 3:00 - 4:30pm
Classroom: Class: McML 154
Important Course Pages
Syllabus
Lecture Notes
Assignments
Course Discussion


Course Description

FRE 501 examines agricultural commodity prices from a commodity trading perspective. After briefly examining the industrial organization of global food markets, the course provides a thorough overview of trading (arbitrage, speculating and hedging) in commodity futures markets. To a lesser extent the course examines derivative instruments in commodity markets including options, forwards and swaps. The quantitative component of the course includes measuring price volatility, price comovements and the pricing of European style options.

Course Support: Gabi Menard (e-mail: gabrielle.menard@ubc.ca). By appointment.

Learning Objectives

By the end of the course, students will be able to make informed decisions about hedging and speculating with agricultural commodity futures and options, and to describe the basic features of related derivative products such as forwards and swaps. Students will also be able to describe global markets for agricultural commodities such as the dominant producing and consuming regions, country-level trade market shares, and the names of the dominant multinational firms. Using a combination of Excel and Stata, students will be able to address a variety of quantitative issues such as calculating futures price volatility and co-movements, and pricing commodity options.

Assessment

Activity Percent of Grade
Assignments
#1 In-Class Multiple Choice Quiz, Sept 12 4%
#2 Distributed Sept. 21, due Oct. 7 8%
#3 Distributed Nov. 9, due Nov. 25 8%
Midterm Exam Monday, October 17 (in class) 35%
Final Exam Friday, December 9 45%
Total: 100%


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 (contact Prof. Vercammen or Gabi before class if you will be absent) and to arrive on time.

Required Textbooks

  1. Geman, Hélyette. Agricultural Finance: From Crops to Land, Water and Infrastructure.
    Wiley, West Sussex (2015) UBC Bookstore $138 or Wiley E-book $89
  2. CME: An Introduction to Futures and Options
    www.cmegroup.com/files/intro_fut_opt.pdf Free
  3. Methods to Analyse Agricultural Commodity Price Volatility
    edited by Isabelle Piot-Lepetit and Robert M'Barek, Springer, London (2011)
    90 Day E-book Rental from Google Books/Google Play $53.54
  4. D. Jovanovic, Slobodan. Hedging Commodities: a Practical Guide to Hedging Strategies
    with Futures and Options Harriman House, Hampshire (2014)
    Purchase from Google Books/Google Play $55.82

Technology Requirements

All students must have an i-Clicker and should have a laptop computer with Excel and Stata.


Class Day Date Reading Topic
Introduction
1 Wed 7-Sep none Format of the Course; Overview of Excel data tools
2 Mon 12-Sep B Overview of futures trading (in-class quiz, open book!)
3 Wed 14-Sep A: Ch 1 Physical and financial agricultural markets
Commodity Price Volatility
4 Mon 19-Sep C: Ch 1,2 Overview of issues and methods
5 Wed 21-Sep C: Ch 4 In-depth analysis
6 Mon 26-Sep none In class lab with Excel and Stata
7 Wed 28-Sep A: Ch 2 Commodity comparison
Commodity Futures
8 Mon 3-Oct A: 3.1-3.5, D Ch 2, Forward and futures contracts
9 Wed 5-Oct A: Ch 3.6–3.7 Storage and forward curves
Mon 10-Oct Thanksgiving (no class)
10 Wed 12-Oct D: Ch 4, 5 Hedging with futures
Mon 17 Oct Midterm Exam Covers all material to end of “Hedging with Futures”
11 Wed 19-Oct D: Ch 7 Basis
12 Mon 24-Oct D: Ch 8 Commodity swaps
Options on Futures Contracts
13 Wed 26-Oct A Ch 4.1,4.2, D Ch 10 Options on commodity spot and forward prices
14 Mon 31-Oct D: Ch 11 Hedging with options
15 Wed 2-Nov A Ch 4.3, D Ch 17 Put-call parity
16 Mon 7-Nov D: Ch 16 Valuation of option using the binomial formula
17 Wed 9-Nov none In-class exercise using R
18 Mon 14-Nov A: Ch 4.4 Valuation of options using the Black-Scholes formula
19 Wed 16-Nov A: Ch 4.9-4.10 Implied volatility
Commodity Overview
20 Mon 21-Nov A: Ch 7 - 11 Commodity Overview (student presentations)
21 Wed 23-Nov A: Ch 7 - 11 Commodity Overview (student presentations)
Time Varying Volatility and Conditional Correlation
22 Mon 28-Nov TBA Introduction to GARCH and conditional correlation
23 Wed 30-Nov none In-class exercise
Fri 9-Dec Final Exam