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"Comprehensively deals with worldwide agriculture markets, spikes in agricultural commodity prices, trading strategies (CTAs and others), the agribusiness industry, the challenges of feeding the planet, and the subjects of land, water, fertilizers, biofuels and ethanol"--
List of contents
Acknowledgments xiii
About the Author xv
Preamble xvii
1 Physical and Financial Agricultural Markets 1
1.1 Agriculture and the Beginning of Human Sedentarization 1
1.1.1 Some recent numbers 2
1.1.2 The growing role of Africa 2
1.2 The Outlook of Agricultural Commodities Markets 3
1.2.1 Recent mergers and acquisitions 3
1.2.2 'Trading places': from the abcd to the now 4
1.2.3 The physical markets 9
1.2.4 The global flows of commodities 10
1.2.5 Back to the future: a new age for barter 11
1.2.6 The sources of information in agricultural commodity markets 12
1.3 History of Commodity Futures and Spot Markets 12
1.3.1 The actors in financial markets 12
1.3.2 The actors in agricultural commodity exchanges 13
1.3.3 The growth of Futures markets exchanges and the recent mergers 14
1.3.4 Futures markets and price volatility 15
1.3.5 The role of indexes in the creation of efficient commodity spot markets 16
1.3.6 Commodities and numéraire 17
1.4 Shipping and Freight 17
1.4.1 International trade 18
1.4.2 Price formation in freight markets 18
2 Agricultural Commodity Spot Markets 25
2.1 Introduction 25
2.2 Price Formation in Agricultural Commodity Markets 25
2.3 Volatility in Agricultural Markets 27
2.3.1 Volatility of the price level versus return in agricultural commodity markets 32
2.3.2 Which factors drive volatility? 36
2.3.3 Conclusion 38
3 Futures Exchanges - Future and Forward Prices - Theory of Storage - The Forward Curve 39
3.1 Major Commodity Exchanges 39
3.2 Forward Contracts 41
3.3 Futures Contracts 43
3.3.1 Definition 43
3.3.2 Exchange of Futures for physicals (efp) 44
3.4 Relationship between Forward and Futures Prices 45
3.5 Example of a Future Spread 47
3.6 Inventory and Theory of Storage 47
3.6.1 Spot and Futures prices volatilities 49
3.6.2 Development of the theory of storage: inventory and prices 51
3.7 The Benefits of Forward Curves 52
3.7.1 Trading strategies around forward curves 52
3.7.2 Example of a seasonality-based Futures spread 53
3.7.3 From linear to convex payoffs 54
3.8 Stochastic Modeling of the Forward Curve 55
4 Plain Vanilla Options on Commodity Spot and Forward Prices. The Bachelier-Black-Scholes Formula, the Merton Formula, the Black Formula 59
4.1 Introduction 59
4.2 Classical Strategies involving European Calls and Puts 62
4.2.1 Straddle 62
4.2.2 Strangle 62
4.2.3 Call spread or vertical call spread 63
4.2.4 Butterfly spread 64
4.3 Put-Call Parity for a Non-dividend Paying Stock 64
4.4 Valuation of European Calls: the Bachelier-Black-Scholes Formula and the Greeks 66
4.4.1 Consequences of the Black-Scholes formula 70
4.4.2 The Greeks 71
4.5 The Merton (1973) Formula for Dividend-paying Stocks 75
4.6 Options on Commodity Spot Prices 77
4.7 Options on Commodity Futures: the Black (1976) Formula 78
4.8 Monte-Carlo Simulations for Option Pricing 79
4.8.1 The founding result 79
4.8.2 Monte-Carlo methods for plain vanilla options on non-dividend paying stocks 80
4.8.3 Monte-Carlo methods for plain vanilla options on the spot commodity 82
4.9 Implied Volatility, Smile, and Skew in Equity Option Markets 83
4.10 Volatility Smile in Agricultural Commodity Markets 86<
About the author
HÉLYETTE GEMAN is Director of the Commodity Finance Centre at Birkbeck, University of London and Research Professor at Johns Hopkins University. She is a graduate of Ecole Normale Supérieure in Mathematics, holds a Masters degree in Theoretical Physics and a PhD in Probability from the University Pierre et Marie Curie; and a PhD in Finance from the University Paris Sorbonne.
Professor Geman has published more than 130 papers in top international finance, insurance and energy economics Journals, became in 1993 a Member of Honour of the French Society of Actuaries for her work on Catastrophic risk; received in 1994 the first Prize of the Merrill Lynch awards for her research on Asian and complex options; was named in 2004 in the Hall of Fame of Energy Risk. She has been a scientific advisor to major financial institutions, energy and mining companies and commodity houses for the last 21 years, covering the spectrum of interest rates, crude oil and natural gas, metals and agricultural, including water, fertilizers and land.
Her book
Insurance and Weather Derivatives was published in 1999 by RISK Publications; her book entitled
Commodities and Commodity Derivatives: Energy, Metals and Agriculturals published by Wiley Finance in 2005 has become the reference in industry and Master programmes worldwide.
Prof Geman counts among her PhD students Nassim Taleb. She is presently on the Board of a green energy company and an active participant in a 'precision farming' project involving 12,500 farmers in East Africa.
Summary
Explores the agricultural marketplace and the cycles in agricultural commodity prices that can be the key to investor success. This book addresses a wide range topics including agricultural insurance, energy, shipping and bunker prices, sustainability, investments in land, subsidies, agricultural derivatives, and farming risk-management.
