Post on 03-Apr-2018
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Qn 17
(a) Details
Cont Comp
rate
Spot 1,400 Future 1,477.01
Period (mths) 6W/House rent pa 200 13.35% 1,477.01
ROI % 12.0% 11.33%
Conveniecen Yield 15.0% 13.98%
Qn
17(b) Details
Cont Comp
rate
Spot 2,600 2,521 Future
Period (mths) 1 1 2,552.43
79 Dividend (80) 6 2,715.26
ROI % 16.0% 14.84% 12 2,924.42
Qn 21 SD of Mthly Changes in Spot 1.8 h 1.8 * 0.8 / 2.1
SD of Mthly changes in Future 2.1 h 0.686
Correlation coeff 0.8 Tailed Hedg 0.68 *1500 / 1750
Period Mths 3 Ratio 0.588
Optimal Hedge Ratio
Spot Price 1,500 1% * s / Future Price 1,750
What is Tailed Hedge Ratio
Period S F (S- s) (F-f) (S- s)
1 130.0 (80.0) 78.5 (84.5) 6,162.3
2 390.0 440.0 338.5 435.5 114,582.3
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3 (90.0) (310.0) (141.5) (314.5) 20,022.3
4 (100.0) (260.0) (151.5) (264.5) 22,952.3
5 (210.0) (310.0) (261.5) (314.5) 68,382.3
6 240.0 420.0 188.5 415.5 35,532.3
7 75.0 15.0 23.5 10.5 552.3
8 (420.0) (440.0) (471.5) (444.5) 222,312.3
9 180.0 330.0 128.5 325.5 16,512.310 320.0 240.0 268.5 235.5 72,092.3
Sum 515.0 45.0 579,102.5
Average 51.5 4.5 57,910.3
0.1 Contracts 20 2054Period Date Spot Future P&L Day P&L Upto day Margin
1 1-Mar-11 1,025.0 1,027.0 2,054.0
2 2-Mar-11 1,017.0 1,030.0 (60.0) (60.0) 1,994.0
3 3-Mar-11 1,002.0 1,020.0 200.0 140.0 2,194.0
4 4-Mar-11 997.0 1,009.0 220.0 360.0 2,414.0
5 5-Mar-11 1,008.0 1,010.0 (20.0) 340.0 2,394.0
6 6-Mar-11 989.0 1,003.0 140.0 480.0 2,534.0
7 7-Mar-11 985.0 992.0 220.0 700.0 2,754.0
8 8-Mar-11 977.0 984.0 160.0 860.0 2,914.0
9 9-Mar-11 955.0 959.0 500.0 1,360.0 3,414.0
10 10-Mar-11 969.0 945.0 280.0 1,640.0 3,694.0
Sum
Average
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F =
Date Price Days ROI % F
Spot Dat 9-Feb-11 22,690
Future E 14-May-11 25,300 0.26 23,579
Future E 28-Mar-11 22,900 0.13 23,130
Opportunity cost of capital 8.50% 8.16%
Warehousing cost 7.00% 6.77%
94.0
47.0
3.435 100
Int rate Period FV (Cont co PV factor PV of Intt Pv of Pincipal
5.00% 0.50 1.0253 0.9753 3.3502
5.80% 1.00 1.0597 0.9436 3.2414
6.40% 1.50 1.1008 0.9085 3.1206
6.80% 2.00 1.1457 0.8728 2.9982 87.2843
12.7104 99.9947
S * e +
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E 0.1* E 0.11 E2*0.105
1.0 0.1000 1.1052
2.0 0.1100 1.2337 0.1050
3.0 0.1200 1.3910 0.1100
4.0 0.1300 1.5841 0.1150
5.0 0.1400 1.8221 0.1200
6.0 0.1500 2.1170 0.1250
7.0 0.1600 2.4843 0.1300
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eb
Qn 18 15-Jan-11 15-Mar-11 Rate
Contr
Maturity
Date
ROI 13.0% 16.0% 15-Jul-11
Forward Price 1,420 1,490
of 6 mths 70.00 122
66.61
Qn 19 S1-S0
Feb spot 51,000 From Feb
Mthly
Progressive
April Futures 52,010 2.0 11.77%
May Futures 51,800 3.0 6.23% -4.86%
June Futures 52,650 4.0 9.55% 19.53%
Cost of Capital 14.0% 13.10%
Risk free Rate 7.0% 6.77%
Qn 24 Delta S Delta F1 130 -80
2 390 440
3 -90 -310
4 -100 -260
5 -210 -310
6 240 420
7 75 15
8 -420 -440
9 180 330
10 320 240
515
51.5
(F-f)
(S-s)* (F-
f)
7,140.3 (6,633.3) s 57,910.3 s 240.6
189,660.3 147,416.8 f 99,632.3 f 315.6
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98,910.3 44,501.8 Cov sf 70,080.8
69,960.3 40,071.8 0.9298,910.3 82,241.8 0.70
172,640.3 78,321.8 Min Hedge Ra h * s /f 0.70110.3 246.8
197,580.3 209,581.8 Portfolio 1,000.0
105,950.3 41,826.8 NIFTY level 1.055,460.3 63,231.8 NIFTY 1 contr size 20.0
Cost of Min lot 20.0
996,322.5 700,807.5 No of Contr for P/folio (norm) 50.0
99,632.3 70,080.8 No of cont for Min Hedge h * PF / Min 35.2
s 0.0 s 0.0
f 0.0 f 0.0Cov sf 0.0
#DIV/0!#DIV/0!
Min Hedge Ra h * s /f #DIV/0!
Portfolio 1,000.0
NIFTY level 1.0
NIFTY 1 contr size 20.0
Cost of Min lot 20.0
No of Contr for P/folio (norm) 50.0
No of cont for Min Hedge h * PF / Min #DIV/0!
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F =
Date Price Days ROI %
Spot Date 9-Feb-11 7,683
Future Expiry 2 18-Mar-11 8,980 0.101
#REF!
Opportunity cost of capital 5.0% 4.9%
Warehousing cost 7.0% 6.8%
Comp freq Exp Rate Exp Rate
2 0.066869552 1.069156
4
S * e + -
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2.0
11.6538% 11.3269% 111.9933%
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Basics Continuous compounding
Relationship between spot & futures Relationship between spot and futures
Contango
Backwardation
Cost of CarryFull carry
Net carry
Convergence of spot and futures
Marginal convenience yield
Arbitrage Cash and carry arbitrage
Reverse cash and carry arbitrage
Hedging Basis
Basis risk
Hedge ratio
Effectiveness of hedge
Perfect hedge
Forwards Vs FuturesTailing a hedge
Trading Open interest
Maintenance Margin, Margin call, Variation
margin, Haricut
Margins on gross basis and net basis
Offsetting
MTM
Levered or Geared
Value at Risk
Delivery Multiplicative adjustment
Additive adjustment
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2.19
2.19
2.18
2.18
3.16
3.23
1.133.24
1.39
1.23
1.25
1.18
1.19
1.3
1.45
1.33
1.33
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Understanding 'e' and Natural Logarithm (Ln) e^rcn
e^rcn
Present Value 100 rc
Annual Rate 15.00% rm
Number of years 1
No.ofcompounding FVIF
FutureValue
Every Annual 1 1.15000 115.00
100*(1+0.15/2)^2 Every Half Year 2 1.15563 115.56
100*(1+0.15/4)^4 Every Quarter 4 1.15865 115.87
Every Month 12 1.16075 116.08
100*(1+0.15/365)^3 Every Day 365 1.16180 116.18
Every Hour 21,900 1.16183 116.18
100*(1+0.15/13140 Every Minute 1,314,000 1.16183 116.18
Continuous Compounding - Future Value
FV = PV(ekt) where the value of e = 2.718281828
1.161834243 15%
Continuous return : The rate of return that when componded continuously, causes an investment to
equal to 1 plus the periodic return. For example Re.1 invested for one year at an annualized continuou
9.53% will grow to Rs.1.10. The continuous return is equal to the natural logarithm of the quantity 1 plu
ln(1.15)= 13.98% e%13.98*1
= 1.1500
Compounding frequency
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= (1+(Rm/m))^(mn)
= (1+(Rm/m))^(m)
= m*Log(1+(Rm/m))
= m*(erc/m -1)
1.0845
Spot Price 48
Future Price 49
Time in days 90
Ann.Rate 8.45%
Cont.Comp Rate 8.11%
48.97
1.161834243
row by a factor
return of
the periodic return.
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Absolute Discrete
Formula
S Spot 10000 10000.00
F Future ?
Intt Rate 15.00% 15% * 6 mth 750.00 15.00% 13.98%
Carry cost 200 200.00 200*(12/6)/10000 4.00% 3.92%
Conv Yield 6% 6%* 6 mth 300.00 6.00% 5.83%
Period (n) 6 13.00% 12.07%
Future 10650.00 S*(1+(r+c-z)*n) 10650.00 Spot*Exp((r+c-z)*n)
Future Price with
No carry return F = S*eiT
INVESTMENT ASSECotton Discr
Spot price per unit of underlying asset S 1190 Rs
Interest Rate (cont Comp) 15.0% i 13.98% p a
Storage cost per annum
Value - settlement date 4/2/2013 -342.00
Expiry date of the contract 4/25/2012Contract Period T -342.000 -0.937
Future Price F ? 1022.75
Future Price
With Carry return F = S*e(i-r)T
INVESTMENT ASSEDiscrete Continuous
Spot price per unit of underlying asset S (Rs) 280
Interest Rate (cont comp) I (% pa) 10% 10.517% 10.00%
Value - settlement date 2/11/2011
Expiry date of the contract 5/11/2011
Contract Period T (Yrs) 0.244
Dividend - carry return 25 36.62% 31.20%
Dividend Yield (Cont comp) r 31.20%
Future Price F 262.18 265.89
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Future Price
with Storage cost F = S*e(i+r-z)T
CONSUMPTION ASDiscrete Continuous
Spot price per unit of underlying asset S (Rs) 500
Interest Rate I (% pa) 12% 12.00% 11.33%
Value - settlement date 2/1/2011
Expiry date of the contract 3/30/2011
Contract Period T 0.167
Storage cost for the period Rs 8.33
Storage cost as % of Spot price r 10.00% 10.00% 9.53%
r' expressed at daily compounded rate 9.53%
Future Price F 517.69 518.33 517.69
Finding Convenience yield given the Y = - {ln(F/S)/t} + (i+r)
Spot, Future, Int, T and Storage cost Discrete Continuous
Spot price per unit of underlying asset S (Rs) 300
Interest Rate I (% pa) 8% 8% 7.70%
Value - settlement date 2/11/2010
Expiry date of the contract 4/11/2010
Contract Period T (Yrs) 0.16164
Storage cost for the period Rs 3.00 6.19% 6.00%
Storage cost as % of Spot price r 1.00%
Annualized storage cost as % of spot pr 6.19%
r' expressed at daily compounded rate 6.00%
Future Price F 290
Convenience yield z 34.67% 34.67% 290.00
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continuous
(1+d1)(1+d2)/(1+d3)
1.1283
e(c1+c2-c3)
112.83%
10622.16
Cont
1043.94
J19
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ET
228.154493
S*exp(i+r-z)t = F
exp(i+r-z)t = (F/S)
(i+r-z)t = Log(F/S)
(i+r-z) = (Log(F/S)/t)
z = i+r- [Log(F/S)/t]
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Maize Nizamabad
Cash and Carry Arbitrage Buy Spot and Sell Forward
Spot Price 1044 Rs Given
Borrowing Cost 10% pa Given 0.214308
Date of transaction 1/25/2011 Given
Date of maturity 4/20/2011 Given 0.109091
No.of days 85 days Arrived
Implied Forward Price 1068.60 Rs Arrived F = S*er*t
Actual Forward Price 1197 Given
Cash and Carry Arbitrage Profit 128.40 Rs. Arrived
Implied Return 58.73% Annualized Arrived
Reverse Cash and Carry Arbitrage Sell Spot and Buy ForwardSpot Price 1334 Rs Given
Lending return 10% pa Given
Date of transaction 4/2/2013 Given
Date of maturity 3/18/2011 Given
No.of days 746 days Arrived
Implied Forward Price 1636.51 Rs Arrived
Actual Forward Price 1325 Given
Rev Cash & Carry Arbitrage Profit 311.51 Rs. Arrived
Implied Return 0.33% Annualized Arrived
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Spot Futures
Date Price Price BASIS
21-Jan-10 734.80 774.00 -39.20 S1 Spot price at time t1
22-Jan-10 731.90 786.50 -54.60 S2 Spot price at time t2
23-Jan-10 737.35 788.00 -50.65 F1 Futures price at time t1
24-Jan-10 736.25 779.00 -42.75 F2 Futures price at time t2
25-Jan-10 737.55 780.50 -42.95 b1 Basis at time t1
28-Jan-10 739.45 772.00 -32.55 b2 Basis at time t2
29-Jan-10 740.40 774.00 -33.60
30-Jan-10 739.20 771.50 -32.30
31-Jan-10 738.00 770.00 -32.00 b1 = S1 - F1
1-Feb-10 734.35 770.00 -35.65 b2 = S2 - F2
2-Feb-10 733.80 764.50 -30.70
4-Feb-10 731.50 765.50 -34.00 Effective price that is obtained for t
5-Feb-10 732.70 770.50 -37.80
6-Feb-10 732.00 774.50 -42.50
7-Feb-10 732.55 770.00 -37.45 Had b2 been equal to zero, the eff
8-Feb-10 734.85 769.50 -34.65
9-Feb-10 739.90 765.50 -25.60What happens if there is maturity mism
11-Feb-10 739.90 767.00 -27.10
12-Feb-10 730.90 749.50 -18.60
13-Feb-10 730.55 744.50 -13.95
14-Feb-10 730.00 746.00 -16.00
15-Feb-10 726.50 740.00 -13.50
16-Feb-10 725.00 741.00 -16.00
18-Feb-10 724.75 740.00 -15.25
19-Feb-10 725.75 741.00 -15.25
20-Feb-10 725.75 739.00 -13.25
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28-Jan-10 739.45
8-Feb-10 734.85
28-Jan-10 772.00
8-Feb-10 769.50
28-Jan-10 -32.55
8-Feb-10 -34.65
-32.55
-34.65 The hedging risk is the uncertainty associated with b2 and is known as ba
e asset with hedging is: S2 + F1 - F2 = F1 + b2
= 737.35
ctive price that is obtained for the asset would have been F 1 ie the hedged price
tch or Contract size mismatch or Asset mismatch?
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sis risk
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Where only data wrt s & f are provided and all stats incl , and are to be estimated a
Perio
d F S (F- f) (S-s) (F- f) (S-s)
(S-s)* (F-
f)
1 5.00 6.00 4.00 4.70 16.00 22.09 18.80 f2 4.00 3.00 3.00 1.70 9.00 2.89 5.10 s3 (4.00) (2.00) (5.00) (3.30) 25.00 10.89 16.50 Cov sf
4 2.00 3.00 1.00 1.70 1.00 2.89 1.70 5 3.00 2.00 2.00 0.70 4.00 0.49 1.40
6 (3.00) (1.00) (4.00) (2.30) 16.00 5.29 9.20 Min Hedge Ra
7 5.00 4.00 4.00 2.70 16.00 7.29 10.80
8 4.00 3.00 3.00 1.70 9.00 2.89 5.10 Portfolio
9 (4.00) (4.00) (5.00) (5.30) 25.00 28.09 26.50 NIFTY level
10 (2.00) (1.00) (3.00) (2.30) 9.00 5.29 6.90 NIFTY 1 contr
Cost of Min lot# Sum 10.00 13.00 130.00 88.10 102.00 No of Contr for
Average 1.00 1.30 14.44 9.79 11.33 No of cont for
Case 2 Where Beta is Given and a Portfolio is to be hedged
1,100
110.0% Say Nifty spot after 3rd mths was
Loss on portfolio
5,000 Futures for 1 mth S* e^(ti-ty)
NIFTY 1 contr size 50 Gain from futures
Cost of Min lot : NIFTY 250,000 No Sale Price Purch Price
Risk Free Rate 10.0% 1,500 5,101.01 5,527.57
Dividend Yield (Index) 4.0%
P/folio beta wrt NIFTY 1.5 Loss on Portfolio
No of mths Hedge needed for 4 Idx Gain Div Gain Net Idx Gain RF Rate
No of years effective 0.33 10.00% 1.00% 11.00% 2.50%
The Expd Future value = S* e^(ti-ty) Value of Portfolio
5,101.01 Total Gain /Loss
No of Contracts needed to be shorted Value of Position
to hedge portfolio * P/N 30 Net Gain (%)
950
95.0% Say Nifty spot after 3rd mths was
Loss on portfolio
5,000 Futures for 1 mth S* e^(ti-ty)
NIFTY 1 contr size 50 Gain from futures
Cost of Min lot : NIFTY 250,000 No Sale Price Purch Price
Risk Free Rate 10.0% 1,500 5,101.01 4,773.81
Dividend Yield (Index) 4.0%
5,000,000
Portfolio (Rs) 5,000,000
NIFTY level now
Portfolio (Rs)
NIFTY level now
Case 1
Cov sf/f = * s fh = =
h = = Cov sf/f = * s /f
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P/folio beta wrt NIFTY 1.5 Loss on Portfolio
No of mths Hedge needed for 4 Idx Loss Idx Div Gain Net Idx Loss RF Rate
No of years effective 0.33 -5.00% 1.00% -4.00% 2.50%
The Expd Future value = S* e^(ti-ty) Value of Portfolio
5,101.01 Total Gain /Loss
No of Contracts needed to be shorted Value of Position
to hedge portfolio * P/N 30 Net Gain (%)
1050
105.0% Say Nifty spot after 3rd mths was
Loss on portfolio
5,000 Futures for 1 mth S* e^(ti-ty)
NIFTY 1 contr size 50 Gain from futures
Cost of Min lot : NIFTY 250,000 No Sale Price Purch Price
Risk Free Rate 10.0% 1,500 5,101.01 5,276.32
Dividend Yield (Index) 4.0%
P/folio beta wrt NIFTY 1.5 Loss on Portfolio
No of mths Hedge needed for 4 Idx Loss Idx Div Gain Net Idx Loss RF Rate
No of years effective 0.33 5.00% 1.00% 6.00% 2.50%
The Expd Future value = S* e^(ti-ty) Value of Portfolio
5,101.01 Total Gain /Loss
No of Contracts needed to be shorted Value of Position
to hedge portfolio * P/N 30 Net Gain (%)
Portfolio (Rs) 5,000,000
NIFTY level now
h = = Cov sf/f = * s /f
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d Portfolio hedged
14.44 f 3.809.79 s 3.13
11.33
0.95
0.78
h * s /f 0.78
5,000,000
5,000
size 50
250,000/folio (norm) 20.00
Min Hedge h * PF / Min 15.69
5,500 Mths
10.0% 3
5,527.57 1,105.51
N
(639,843) (639,843)
Rf+b(Rm-R P/folio Loss
15.25% 762,500
5,762,500
122,657
5,122,657
9.8%
4,750 Mths
-5.0% 3
4,773.81 954.76
N
490,796 490,796
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Rf+b(Rm-R P/folio Loss
-7.25% (362,500)
4,637,500
128,296
5,128,296
10.3%
5,250 Mths
5.0% 3
5,276.32 1,055.26
N
(262,964) (262,964)
Rf+b(Rm-R P/folio Loss
7.75% 387,500
5,387,500
124,536
5,124,536
10.0%
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Spot price
February
contract Closing for
Futures
Closing price MTM profit
10:00 AM 1/1/2010 1600 29-02-2010 1650
Noposition at
the spot
Long on
futures 1/1/2010 1550 -100
1/2/2010 1535 -15
1/3/2010 1600 65
1/4/2010 1660 60
1/5/2010 1575 -85
1/6/2010 1550 -25
1/7/2010 1515 -35
1/8/2010 1635 120
1/9/2010 1660 25
1/10/2010 1685 25
29-02-2010 1700 15
Diff between closing of 28/
Hence the value of a futur
Spot price Closing for
Futures
Closing price MTM profit
1/1/2010 1600 29-02-2010 1650
No
position at
the spot
Long on
futures 1/1/2010 1550 -100
1/2/2010 1535 -15
1:00 PM 1/3/2010 1535 29-02-2010 1610 1/3/2010 1600 65
Short on
futures 1/4/2010 1660 60
1/5/2010 1575 -85
1/6/2010 1550 -25
1/7/2010 1515 -35
1/8/2010 1635 120
1/9/2010 1660 25
1/10/2010 1685 25
29-02-2010
Closing out the long position in futures
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10%
Tot MTM
profit /
loss
Initial
Margin 165 82.5
Paid Margin
-100 65 Margin call
-115 50
-50 115
10 175
-75 90
-100 65
-135 30
-15 150
10 175
35 200
50 215
2 and 29/2 will be settled
is always reset to zero at the end of the day
Tot MTM
profit /
loss
Op prm
received
MTM
profit /
loss
Tot MTM
profit /
loss
-100
-115
-50 10 -40
10 -60 -40
-75 85 -40
-100 25 -40
-135 35 -40
-15 -120 -40
10 -25 -40
35 -25 -40
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Month
Change in fuel
price per gallon
Change in
futures price per
gallon
x y
1 0.029 0.021 SD of x 0.026255
2 0.02 0.0353 -0.044 -0.046 SD of y 0.031343
4 0.008 0.001
5 0.026 0.044 Coeff of Correl of x and y 0.928372
6 -0.019 -0.029
7 -0.01 -0.026 Hedge ratio 0.777651
8 -0.007 -0.029
9 0.043 0.048 Qty of oil to be hedged 2000000 gallons
10 0.011 -0.006 Unit Qty traded on NYMEX 42000
11 -0.036 -0.036
12 -0.018 -0.011 No.of contracts to be hedged 37.03098 contracts
13 0.009 0.019 rounded 37 contracts
14 -0.032 -0.02715 0.023 0.029 Hedge effectiveness R 86.19%
1 Measures the ability of the hedging instrument to gene
offsetting changes in the fair value of the hedged instr
2 The r-square of the regression equation answers the q
of to what extent the hedge is effective
3 Rbelow the value of 70% is generally considered ine
S = hF + C +e
where h is the hedge ratio
R2
of the equation is the hedging effectiveness
To what extent S is explained by F
TAILING THE HEDGE To tail the hedge repla
Instead of Optimal number of contracts = hedge ratio *
Make it Optimal number of contracts = hedge ratio *
Spot price per gallon 1.94
Future price per gallon 1.99
Dollar value to be hedged 3880000 (Spot pric
Dollar value per contract 83580 (Future pr
No.of contracts to be hedged 36.10056 contractsrounded 36 contracts
gallons per
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Example for tailing the hedge
Amount to be hedged
Period of hedge
Rate of interest
Amount to be hedged taking into account
tailing is
Forwards 100
Int rate 8% p.a
Period 0.5 years
Spot 90
1.10517091810.00%
-0.07257
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Column1 Column2 SUMMARY OUTPUT
Mean 0.0002 Mean -0.0009 Regression Stat
Standard Error 0.00678 Standard Error 0.0081 Multiple R
Median 0.008 Median -0.006 R Square
Mode #N/A Mode -0.029 Adjusted R Square
Standard Deviation 0.02625 Standard Deviation 0.0313 Standard Error
Sample Variance 0.00069 Sample Variance 0.001 Observations
Kurtosis -1.03974 Kurtosis -1.4474Skewness -0.18317 Skewness 0.2231 ANOVA
rate Range 0.087 Range 0.094
ment Minimum -0.044 Minimum -0.046 Regression
uestion Maximum 0.043 Maximum 0.048 Residual
Sum 0.003 Sum -0.013 Total
fective Count 15 Count 15
Intercept
X Variable 1
e the size of the hedge with values
Size of Position / Size of 1 futures contract
Value of Position / Value of 1 futures contract
* No.of gallons to be hedged)
ice * No. of gallons per contract)
contract
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Amt * e-i*T
10 Million Euros
3 Months
4% p.a
9.9005 Million Euros
S = 540 100
If ex
= y i= 8%Then ln(1+y) = x T= 1 Year
z= 1.30%
So if F = S*e(iT+z)
F= 500 116.1834
Then F/S = e(iT+Z)
Then iT+z = ln(1+(F/S)) -0.072570693 0.149999791
Since F and S are expressed in amounts and
F/S will be ratio, it has to be expressed in %
as the right hand side is in %
If F/S is 1.10, it is 10%
Therefore iT+z = ln(1+((F/S)-1))
-0.072570693
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istics
0.928372
0.861875
0.85125
0.012089
15
df SS MS F ignificance F
1 0.011854 0.011854 81.11779 5.97E-07
13 0.0019 0.000146
14 0.013754
oefficientsandard Err t Stat P-value Lower 95%Upper 95% ower 95.0 pper 95.0%
-0.00109 0.003121 -0.34867 0.732917 -0.00783 0.005655 -0.00783 0.005655
1.108306 0.123056 9.006542 5.97E-07 0.842461 1.374152 0.842461 1.374152
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Value of a Forward contract = (F(t,T) -
1 + r(T-t
Risk Free rate
Forward date
Original date of the deal
Forward price on the date of
Today
Forward price today
Value of the forward contract
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F(0,T)
/365
13%15/Jul/10
15/Jan/10
original deal 1420
3/15/2010
1490
67.09 67.10792
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Use of Betas in Index Futures
Beta of the technology stock possessed by the investor 1.2
No.of shares bought 10000
Price at which bought 1200 Rs.per sha
What is the magnitude of index futures hedge that is required?
Amount invested 2400000000
Size of the hedge (amt invested x beta) 2880000000
No.of contracts required to hedge:
For Nifty futures the index multiplier is 50 Rs
Suppose Nifty index value is 4800
Each Nifty futures contract has a notional value of 240000 Rs
Hence the number of Nifty futures contract that is required is 12000
51 contracts r
How do they offset?
Assume index falls by 1%
Each short Nifty futures contract produces a gain of 2400 Rs
51 short Nifty futures contract will produce a gain of 122400 Rs
Since stock price is Rs.1200, 1% fall in index will lead to
a fall of 1.5% in the stock and hence the stock price will fall by 1.20%
Hence the stock value will drop to 2371200000 Rs
Loss 28800000 Rs
The difference is on account of rounding off of the contracts
Assume you want to reduce the beta of the portfolio to 0.90 from 1.5 as you expect the ma
Desired level of Beta 0.6
Number of contracts to be hedged would be 6000.00
Number of contracts to be hedged rounded 6000.00
Assume index falls by 1%
Each short Nifty futures contract produces a gain of 2400 Rs
Short Nifty futures contract will produce a gain of 14400000 Rs
Since stock price is Rs.1200, 1% fall in index will lead to
a fall of 1.5% in the stock and hence the stock price will fall by 1.20%
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Hence the stock value will drop to 2371200000 Rs
Loss 28800000 Rs
Gain in the futures contract 14400000
Net loss 14400000
Had the beta of the portfolio been 0.9 the loss for 1% drop in indexwould have been 14400000
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e
unded
rket to fall
No. of contracts to hedge:
Amount Invested x (Actual Beta - Desired Beta)
Notional Val of 1 Nifty
6000
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2436000000
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FUNDAMENTAL ANALYSIS FOR A COMMODITY
Properties of the commodity
Uses of the commoditySpecial attributes of the commodity
Various varieties of the commodity
Industries which consume this commodity and its consumpti
Countries which produce this commodity and its production q
Countries which consume this commodity and its consumptio
Demand Supply position for the commodity
Exporting countries and the quantum they export
Importing countries and the quantum they import
Indian scenario of the commodityproduction quantity
consumption quantity
export / import quantity
production cycle
competitiveness vis--vis global markets
major production and trading centres
Substitutes for the commodity
Volume traded in the global and domestic exchanges
Price movements during the past one year
Yield analysis
Ware house storing cost for the commodity
Commodity contract specifications
Outlook for the commodity
Govt regulations affecting the commodity
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n pattern
uantity
n quantity
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Type of Contract
Name of Commodity
Ticker symbol
Trading System
BasisUnit of trading
Delivery unit
Quotation/base value
Tick size
Quality specification
Quantity variation
Delivery center
Additional delivery centres
Hours of trading
Delivery specification
Deliver Logic
No. of active contracts
Opening of contracts
Due date/Expiry date
Closing of contract
Daily price fluctuation limi
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Position limits
Mininmum Initial Margin
Special Margin
Contract Launch Month
2-May-08
2-Jun-08
1-Jul-08
1-Aug-08
1-Sep-08
1-Oct-083-Nov-08
1-Dec-08
1-Jan-09
2-Feb-09
2-Mar-09
2-Apr-09
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Futures Contract Specifications
ZINC INGOT
ZINC
NCDEX Trading SystemEx-Warehouse at Bhiwandi, exclusive of Import Duty, CVD/Excise, Cess, Sales Tax / VAT and
any other levy or tax. In addition, the Buyers will be liable to pay delivery charges to Seller as
notified by the Exchange before launch of respective contract5 MT (Five Metric Tonnes)
5 MT (Five Metric Tonnes)
Rs per KG
Re. 0.05/- per KG (5 Paise )
IS 209 -1992 / ASTM B6-03
+/- 250 KGs or 2% whichever is lower
Bhiwandi, Maharastra. Warehouse to be accredited within 50kms from the municipal limits
Delhi. Warehouse to be accredited within 50kms from the municipal limits
Location Premium/Discount as notified by the Exchange from time to time
As per directions of the Forward Markets Commission from time to time, currently-Mondays through Fridays : -
10:00 AM to 11:30 PM
10:00 AM to 11:55 PM (during US day light saving period)
Saturdays - 10:00AM to 02:00 PM
Expiry Date - at 11:30 PM / 11:55 PM *
All timings are as per Indian Standard Timings (IST)
* during US day light saving period.
The Exchange may change the above timing with due notice.The buyer and seller shall mark intentions of taking/giving through the delivery request
window at least 3 trading days prior to the expiry of the contracts and the intention will be
collected during 3 days which would be notified separately.Intention Matching
As per the launch calendar
Trading in any contract month will open on the 1st day of the month. If the 1st day happens
to be a non-trading day, contracts would open on the next trading day
Last trading day of the month
If last day happens to be a holiday, a Saturday or a Sunday then the due date shall be the
immediately preceding trading day of the ExchangeOn expiry of the contract, all outstanding positions not resulting in giving/taking of physical
delivery of commodity shall be closed out at the Final Settlement Price announced by the
Exchange
Daily price limit is (+/-) 5% from the previous day's closing price. If the trade hits the
prescribed daily price limit there will be a cooling off period for 15 minutes. Trade will be
allowed during this cooling off period within the price band. Thereafter the price band would
be raised by another 50% of the existing limit i.e. (+/-) 2.5% and trade will be resumed. If the
price hits the revised price band (7.5%) again during the day, trade will only be allowed within
the revised price band. No trade/order shall be permitted during the day beyond the revised
limit of (+/-) 7.5% from the previous day's closing price.
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Memberwise: 6,000 Metric Tonnes or not more than 20% of the market open position,
whichever is higher
Clientwise: 1,500 Metric Tonnes
The above limits will not apply to bona fide hedgers. For bona fide hedgers, the Exchange
will, on a case to case basis, decide the hedge limits. Please refer to Circular No.
NCDEX/TRADING-100/2005/219 dated October 20,20055%In case of additional volatility, a special margin at such percentage, as deemed fit, will be
imposed in respect of outstanding positions, which will remain in force as long as the
volatility exists, after which the special margin may be relaxed.
Contract Expiry Month
31-Jul-08
29-Aug-08
30-Sep-08
31-Oct-08
28-Nov-08
31-Dec-0830-Jan-09
27-Feb-09
31-Mar-09
30-Apr-09
29-May-09
30-Jun-09
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Groundnut CONTR
Asset Code
Product Code
Series Code
Trading System
Unit of Trading
Delivery Unit
Quotation/Base Value
Tick Size
Price Band*
Quality Specification
No. of delivery Contracts
in a year
Opening of Contracts
Due Date
Closing of Contract
*As per Circular No. NMCE/2007-08/0
**As per Circular No. NMCE/2007-08/
Limit on open position**
Trading Hours
Delivery Centers
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CT
GRNUTS
GRNUTSF
GRSMMMYYYY
NMCEs Derivatives Trading and Settlement System
Monday to Friday :- 10:00 AM to 05:00 PMSaturday :- 10:00 AM to 02:00 PM
GNUT
1 MT
20 Kgs
10 paise
Daily price fluctuation limit will be +/-2 %. Limit on daily price
fluctuation will be reckoned with reference to the previous close
price. If trade hits this price limit, trade would stop for 15 minutes,
where after price would be extended by another +/- 2%. No trade
would be permitted during the day beyond then revised price limit
of + - 4%
Quality Specifications as per Grade 'Special' in Schedule III ofGroundnut [Grading and Marking] Rules, 1965 [Agmark]
Maximum 12 monthly or minimum 2 monthly contracts running
concurrently.
Trading in any contract month will open on the 16th day of the
month, 12 months prior to the contract month.
15th day of the delivery months if 15th happens to be holiday then
previous working day.
Squaring up of positions will be permitted between 12th
and 15th
of
delivery month. No fresh positions building will be allowed. From
12th to the 15th of delivery month, seller can tender Warehouse
Receipt for settlement and Warehouse Receipt will be accepted for
settlement at closing price of the previous day.
Client 3,000 MT
Member 9,000 MT or 15% of total market open position in the
commodit whichever is hi her
97 dated 16 February, 2008
098 dated 16 February, 2008
Rajkot
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METALS SPICES Other Agri GRAINS ENERGY
Steel Jeera (Cumin Seeds) Rubber Maize Brent Crude Oil
Copper Cardamom Cotton Wheat Natural Gas
Aluminium Pepper Mentha Oil Sugar Furnace OilLead Turmeric Red Chilli Soya bean Thermal Coal
Tin Sesame seed Jute Chana Gasoline
Nickel Crude Palm oil Gur Air Turbine Fuel
Gold Castor seed Cashew Kernels Electricity
Silver Guar seed
Platinum Cococut
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BEVERAGES
Tea
Coffee