Price risk management in the copper market using commodity derivatives and options strategies

Metals price risk management is a key issue related to financial risk in metal markets because of uncertainty of commodity price fluctuation, exchange rate, interest rate changes and huge price risk either to metals’ producers or consumers. Thus, it has been taken into account by all participants in metal markets including metals’ producers, consumers, merchants, banks, investment funds, speculators, traders and so on. Managing price risk provides stable income for both metals’ producers and consumers, so it increases the chance that a firm will invest in attractive projects. The purpose of this research is to evaluate risk management strategies in the copper market. The main tools and strategies of price risk management are hedging and other derivatives such as futures contracts, swaps and options contracts. Hedging is a transaction designed to reduce or eliminate price risk. Derivatives are financial instruments, whose returns are derived from other financial instruments and they are commonly used for managing financial risks. Although derivatives have been around in some form for centuries, their growth has accelerated rapidly during the last 20 years. Nowadays, they are widely used by financial institutions, corporations, professional investors, and individuals. This project is focused on the over-the-counter (OTC) market and its products such as exotic options, particularly Asian options. The first part of the project is a description of basic derivatives and risk management strategies. In addition, this part discusses basic concepts of spot and futures (forward) markets, benefits and costs of risk management and risks and rewards of positions in the derivative markets. The second part considers valuations of commodity derivatives. In this part, the options pricing model DerivaGem is applied to Asian call and put options on London Metal Exchange (LME) copper because it is important to understand how Asian options are valued and to compare theoretical values of the options with their market observed values. Predicting future trends of copper prices is important and would be essential to manage market price risk successfully. Therefore, the third part is a discussion about econometric commodity models. Based on this literature review, the fourth part of the project reports the construction and testing of an econometric model designed to forecast the monthly average price of copper on the LME. More specifically, this part aims at showing how LME copper prices can be explained by means of a simultaneous equation structural model (two-stage least squares regression) connecting supply and demand variables. A simultaneous econometric model for the copper industry is built: {█(Q_t^D=e^((-5.0485))∙P_((t-1))^((-0.1868) )∙〖GDP〗_t^((1.7151) )∙e^((0.0158)∙〖IP〗_t ) @Q_t^S=e^((-3.0785))∙P_((t-1))^((0.5960))∙T_t^((0.1408))∙P_(OIL(t))^((-0.1559))∙〖USDI〗_t^((1.2432))∙〖LIBOR〗_((t-6))^((-0.0561))@Q_t^D=Q_t^S )┤ P_((t-1))^CU=e^((-2.5165))∙〖GDP〗_t^((2.1910))∙e^((0.0202)∙〖IP〗_t )∙T_t^((-0.1799))∙P_(OIL(t))^((0.1991))∙〖USDI〗_t^((-1.5881))∙〖LIBOR〗_((t-6))^((0.0717) Where, Q_t^D and Q_t^Sare world demand for and supply of copper at time t respectively. P(t-1) is the lagged price of copper, which is the focus of the analysis in this part. GDPt is world gross domestic product at time t, which represents aggregate economic activity. In addition, industrial production should be considered here, so the global industrial production growth that is noted as IPt is included in the model. Tt is the time variable, which is a useful proxy for technological change. A proxy variable for the cost of energy in producing copper is the price of oil at time t, which is noted as POIL(t ) . USDIt is the U.S. dollar index variable at time t, which is an important variable for explaining the copper supply and copper prices. At last, LIBOR(t-6) is the 6-month lagged 1-year London Inter bank offering rate of interest. Although, the model can be applicable for different base metals' industries, the omitted exogenous variables such as the price of substitute or a combined variable related to the price of substitutes have not been considered in this study. Based on this econometric model and using a Monte-Carlo simulation analysis, the probabilities that the monthly average copper prices in 2006 and 2007 will be greater than specific strike price of an option are defined. The final part evaluates risk management strategies including options strategies, metal swaps and simple options in relation to the simulation results. The basic options strategies such as bull spreads, bear spreads and butterfly spreads, which are created by using both call and put options in 2006 and 2007 are evaluated. Consequently, each risk management strategy in 2006 and 2007 is analyzed based on the day of data and the price prediction model. As a result, applications stemming from this project include valuing Asian options, developing a copper price prediction model, forecasting and planning, and decision making for price risk management in the copper market.

Evaluating northern hardwood management using retrospective analysis and diameter distributions

Northern hardwood management was assessed throughout the state of Michigan using data collected on recently harvested stands in 2010 and 2011. Methods of forensic estimation of diameter at breast height were compared and an ideal, localized equation form was selected for use in reconstructing pre-harvest stand structures. Comparisons showed differences in predictive ability among available equation forms which led to substantial financial differences when used to estimate the value of removed timber. Management on all stands was then compared among state, private, and corporate landowners. Comparisons of harvest intensities against a liberal interpretation of a well-established management guideline showed that approximately one third of harvests were conducted in a manner which may imply that the guideline was followed. One third showed higher levels of removals than recommended, and one third of harvests were less intensive than recommended. Multiple management guidelines and postulated objectives were then synthesized into a novel system of harvest taxonomy, against which all harvests were compared. This further comparison showed approximately the same proportions of harvests, while distinguishing sanitation cuts and the future productive potential of harvests cut more intensely than suggested by guidelines. Stand structures are commonly represented using diameter distributions. Parametric and nonparametric techniques for describing diameter distributions were employed on pre-harvest and post-harvest data. A common polynomial regression procedure was found to be highly sensitive to the method of histogram construction which provides the data points for the regression. The discriminative ability of kernel density estimation was substantially different from that of the polynomial regression technique.

Improving sixth grade student knowledge of ecology using fish rearing and release as a real-world context

This research project measured the effects of real-world content in a science classroom by determining change (deep knowledge of life science content, including ecosystems from MDE – Grade Level Content Expectations) in a subset of students (6th Grade Science) that may result from the addition of curriculum (real-world content of rearing trout in the classroom). Data showed large gains from the pre-test to post-test in students from both the experimental and control groups. The ecology unit with the implementation of real-world content [trout] was even more successful, and improved students’ deep knowledge of ecosystem content from Michigan’s Department of Education Grade Level Content Expectations. The gains by the experimental group on the constructed response section of the test, which included higher cognitive level items, were significant. Clinical interviews after the post-test confirmed increases in deep knowledge of ecosystem concepts in the experimental group, by revealing that a sample of experimental group students had a better grasp of important ecology concepts as compared to a sample of control group students.

Land use/cover change using Remote Sensing and Geographic Information Systems : Pic Macaya National Park, Haiti

A post classification change detection technique based on a hybrid classification approach (unsupervised and supervised) was applied to Landsat Thematic Mapper (TM), Landsat Enhanced Thematic Plus (ETM+), and ASTER images acquired in 1987, 2000 and 2004 respectively to map land use/cover changes in the Pic Macaya National Park in the southern region of Haiti. Each image was classified individually into six land use/cover classes: built-up, agriculture, herbaceous, open pine forest, mixed forest, and barren land using unsupervised ISODATA and maximum likelihood supervised classifiers with the aid of field collected ground truth data collected in the field. Ground truth information, collected in the field in December 2007, and including equalized stratified random points which were visual interpreted were used to assess the accuracy of the classification results. The overall accuracy of the land classification for each image was respectively: 1987 (82%), 2000 (82%), 2004 (87%). A post classification change detection technique was used to produce change images for 1987 to 2000, 1987 to 2004, and 2000 to 2004. It was found that significant changes in the land use/cover occurred over the 17- year period. The results showed increases in built up (from 10% to 17%) and herbaceous (from 5% to 14%) areas between 1987 and 2004. The increase of herbaceous was mostly caused by the abandonment of exhausted agriculture lands. At the same time, open pine forest and mixed forest areas lost (75%) and (83%) of their area to other land use/cover types. Open pine forest (from 20% to 14%) and mixed forest (from18 to 12%) were transformed into agriculture area or barren land. This study illustrated the continuing deforestation, land degradation and soil erosion in the region, which in turn is leading to decrease in vegetative cover. The study also showed the importance of Remote Sensing (RS) and Geographic Information System (GIS) technologies to estimate timely changes in the land use/cover, and to evaluate their causes in order to design an ecological based management plan for the park.

Slope stability analysis of the Pacaya Volcano, Guatemala, using limit equilibrium and finite element method

The Pacaya volcanic complex is part of the Central American volcanic arc, which is associated with the subduction of the Cocos tectonic plate under the Caribbean plate. Located 30 km south of Guatemala City, Pacaya is situated on the southern rim of the Amatitlan Caldera. It is the largest post-caldera volcano, and has been one of Central America’s most active volcanoes over the last 500 years. Between 400 and 2000 years B.P, the Pacaya volcano had experienced a huge collapse, which resulted in the formation of horseshoe-shaped scarp that is still visible. In the recent years, several smaller collapses have been associated with the activity of the volcano (in 1961 and 2010) affecting its northwestern flanks, which are likely to be induced by the local and regional stress changes. The similar orientation of dry and volcanic fissures and the distribution of new vents would likely explain the reactivation of the pre-existing stress configuration responsible for the old-collapse. This paper presents the first stability analysis of the Pacaya volcanic flank. The inputs for the geological and geotechnical models were defined based on the stratigraphical, lithological, structural data, and material properties obtained from field survey and lab tests. According to the mechanical characteristics, three lithotechnical units were defined: Lava, Lava-Breccia and Breccia-Lava. The Hoek and Brown’s failure criterion was applied for each lithotechnical unit and the rock mass friction angle, apparent cohesion, and strength and deformation characteristics were computed in a specified stress range. Further, the stability of the volcano was evaluated by two-dimensional analysis performed by Limit Equilibrium (LEM, ROCSCIENCE) and Finite Element Method (FEM, PHASE 2 7.0). The stability analysis mainly focused on the modern Pacaya volcano built inside the collapse amphitheatre of “Old Pacaya”. The volcanic instability was assessed based on the variability of safety factor using deterministic, sensitivity, and probabilistic analysis considering the gravitational instability and the effects of external forces such as magma pressure and seismicity as potential triggering mechanisms of lateral collapse. The preliminary results from the analysis provide two insights: first, the least stable sector is on the south-western flank of the volcano; second, the lowest safety factor value suggests that the edifice is stable under gravity alone, and the external triggering mechanism can represent a likely destabilizing factor.

Development of room temperature operating single electron transistor using FIB etching and deposition technology

The single-electron transistor (SET) is one of the best candidates for future nano electronic circuits because of its ultralow power consumption, small size and unique functionality. SET devices operate on the principle of Coulomb blockade, which is more prominent at dimensions of a few nano meters. Typically, the SET device consists of two capacitively coupled ultra-small tunnel junctions with a nano island between them. In order to observe the Coulomb blockade effects in a SET device the charging energy of the device has to be greater that the thermal energy. This condition limits the operation of most of the existing SET devices to cryogenic temperatures. Room temperature operation of SET devices requires sub-10nm nano-islands due to the inverse dependence of charging energy on the radius of the conducting nano-island. Fabrication of sub-10nm structures using lithography processes is still a technological challenge. In the present investigation, Focused Ion Beam based etch and deposition technology is used to fabricate single electron transistors devices operating at room temperature. The SET device incorporates an array of tungsten nano-islands with an average diameter of 8nm. The fabricated devices are characterized at room temperature and clear Coulomb blockade and Coulomb oscillations are observed. An improvement in the resolution limitation of the FIB etching process is demonstrated by optimizing the thickness of the active layer. SET devices with structural and topological variation are developed to explore their impact on the behavior of the device. The threshold voltage of the device was minimized to ~500mV by minimizing the source-drain gap of the device to 17nm. Vertical source and drain terminals are fabricated to realize single-dot based SET device. A unique process flow is developed to fabricate Si dot based SET devices for better gate controllability in the device characteristic. The device vi parameters of the fabricated devices are extracted by using a conductance model. Finally, characteristic of these devices are validated with the simulated data from theoretical modeling.

BEYOND ROOTS ALONE: NOVEL METHODOLOGIES FOR ANALYZING COMPLEX SOIL AND MINIRHIZOTRON IMAGERY USING IMAGE PROCESSING AND GIS TOOLS

Quantifying belowground dynamics is critical to our understanding of plant and ecosystem function and belowground carbon cycling, yet currently available tools for complex belowground image analyses are insufficient. We introduce novel techniques combining digital image processing tools and geographic information systems (GIS) analysis to permit semi-automated analysis of complex root and soil dynamics. We illustrate methodologies with imagery from microcosms, minirhizotrons, and a rhizotron, in upland and peatland soils. We provide guidelines for correct image capture, a method that automatically stitches together numerous minirhizotron images into one seamless image, and image analysis using image segmentation and classification in SPRING or change analysis in ArcMap. These methods facilitate spatial and temporal root and soil interaction studies, providing a framework to expand a more comprehensive understanding of belowground dynamics.

Using a Prediction and Option Generation Paradigm to Understand Decision Making

In many complex and dynamic domains, the ability to generate and then select the appropriate course of action is based on the decision maker's "reading" of the situation--in other words, their ability to assess the situation and predict how it will evolve over the next few seconds. Current theories regarding option generation during the situation assessment and response phases of decision making offer contrasting views on the cognitive mechanisms that support superior performance. The Recognition-Primed Decision-making model (RPD; Klein, 1989) and Take-The-First heuristic (TTF; Johnson & Raab, 2003) suggest that superior decisions are made by generating few options, and then selecting the first option as the final one. Long-Term Working Memory theory (LTWM; Ericsson & Kintsch, 1995), on the other hand, posits that skilled decision makers construct rich, detailed situation models, and that as a result, skilled performers should have the ability to generate more of the available task-relevant options. The main goal of this dissertation was to use these theories about option generation as a way to further the understanding of how police officers anticipate a perpetrator's actions, and make decisions about how to respond, during dynamic law enforcement situations. An additional goal was to gather information that can be used, in the future, to design training based on the anticipation skills, decision strategies, and processes of experienced officers. Two studies were conducted to achieve these goals. Study 1 identified video-based law enforcement scenarios that could be used to discriminate between experienced and less-experienced police officers, in terms of their ability to anticipate the outcome. The discriminating scenarios were used as the stimuli in Study 2; 23 experienced and 26 less-experienced police officers observed temporally-occluded versions of the scenarios, and then completed assessment and response option-generation tasks. The results provided mixed support for the nature of option generation in these situations. Consistent with RPD and TTF, participants typically selected the first-generated option as their final one, and did so during both the assessment and response phases of decision making. Consistent with LTWM theory, participants--regardless of experience level--generated more task-relevant assessment options than task-irrelevant options. However, an expected interaction between experience level and option-relevance was not observed. Collectively, the two studies provide a deeper understanding of how police officers make decisions in dynamic situations. The methods developed and employed in the studies can be used to investigate anticipation and decision making in other critical domains (e.g., nursing, military). The results are discussed in relation to how they can inform future studies of option-generation performance, and how they could be applied to develop training for law enforcement officers.

Development of a 1-D Catalyzed Diesel Particulate Filter Model for Simulation of the Performance and the Oxidation of Particulate Matter and Nitrogen Oxides Using Passive Oxidation and Active Regeneration Engine Experimental Data

Back-pressure on a diesel engine equipped with an aftertreatment system is a function of the pressure drop across the individual components of the aftertreatment system, typically, a diesel oxidation catalyst (DOC), catalyzed particulate filter (CPF) and selective catalytic reduction (SCR) catalyst. Pressure drop across the CPF is a function of the mass flow rate and the temperature of the exhaust flowing through it as well as the mass of particulate matter (PM) retained in the substrate wall and the cake layer that forms on the substrate wall. Therefore, in order to control the back-pressure on the engine at low levels and to minimize the fuel consumption, it is important to control the PM mass retained in the CPF. Chemical reactions involving the oxidation of PM under passive oxidation and active regeneration conditions can be utilized with computer numerical models in the engine control unit (ECU) to control the pressure drop across the CPF. Hence, understanding and predicting the filtration and oxidation of PM in the CPF and the effect of these processes on the pressure drop across the CPF are necessary for developing control strategies for the aftertreatment system to reduce back-pressure on the engine and in turn fuel consumption particularly from active regeneration. Numerical modeling of CPF's has been proven to reduce development time and the cost of aftertreatment systems used in production as well as to facilitate understanding of the internal processes occurring during different operating conditions that the particulate filter is subjected to. A numerical model of the CPF was developed in this research work which was calibrated to data from passive oxidation and active regeneration experiments in order to determine the kinetic parameters for oxidation of PM and nitrogen oxides along with the model filtration parameters. The research results include the comparison between the model and the experimental data for pressure drop, PM mass retained, filtration efficiencies, CPF outlet gas temperatures and species (NO2) concentrations out of the CPF. Comparisons of PM oxidation reaction rates obtained from the model calibration to the data from the experiments for ULSD, 10 and 20% biodiesel-blended fuels are presented.

Stilling Basin Scour Remediation Using Air Injection and Flat Plate Extension

The South Florida Water Management District (SFWMD) is responsible for managing over 2500 miles of waterways and hundreds of water control structures. Many of these control structures are experiencing erosion, known as scour, of the sediment downstream of the structure. Laboratory experiments were conducted in order to investigate the effectiveness of two-dimensional air diffusers and plate extensions (without air injection) on a 1/30 scale model of one of SFWMD gated spillway structures, the S65E gated spillway. A literature review examining the results of similar studies was conducted. The experimental design for this research was based off of previous work done on the same model. Scour of the riverbed downstream of gated spillway structures has the potential to cause serious damage, as it can expose the foundation of the structure, which can lead to collapse. This type of scour has been studied previously, but it continues to pose a risk to water control structures and needs to be studied further. The hydraulic scour channel used to conduct experiments contains a head tank, flow straighteners, gated spillway, stilling basin, scour chamber, sediment trap, and tailwater tank. Experiments were performed with two types of air diffusers. The first was a hollow, acrylic, triangular end sill with air injection holes on the upstream face, allowing for air injection upstream. The second diffuser was a hollow, acrylic rectangle that extended from the triangular end sill with air injection holes in the top face, allowing for vertical air injection, perpendicular to flow. Detailed flow and bed measurements were taken for six trials for each diffuser ranging from no air injection to 5 rows of 70 holes of 0.04" diameter. It was found that with both diffusers, the maximum amount of air injection reduced scour the most. Detailed velocity measurements were taken for each case and turbulence statistics were analyzed to determine why air injection reduces scour. It was determined that air injection reduces streamwise velocity and turbulence. Another set of experiments was performed using an acrylic extension plate with no air injection to minimize energy costs. Ten different plate lengths were tested. It was found that the location of deepest scour moved further downstream with each plate length. The 32-cm plate is recommended here. Detailed velocity measurements were taken after the cases with the 32-cm plate and no plate had reached equilibrium. This was done to better understand the flow patterns in order to determine what causes the scour reduction with the extension plates. The extension plate reduces the volume of scour, but more importantly translates the deepest point of scour downstream from the structure, lessening the risk of damage.

Oligodeoxynucleotide synthesis using protecting groups and a linker cleavable under non-nucleophilic conditions

Oligodeoxynucleotides (ODNs) containing latent electrophilic groups can be highly useful in antisense drug development and many other applications such as chemical biology and medicine, where covalent cross-linking of ODNs with mRNA, protein and ODN is required. However, such ODN analogues cannot be synthesized using traditional technologies due to the strongly nucleophilic conditions used in traditional deprotection/cleavage process. To solve this long lasting and highly challenging problem in nucleic acid chemistry, I used the 1,3-dithian-2-yl-methoxycarbonyl (Dmoc) function to protect the exo-amino groups on the nucleobases dA, dC and dG, and to design the linker between the nascent ODN and solid support. These protecting groups and linker are completely stable under all ODN synthesis conditions, but can be readily cleaved under non-nucleophilic and nearly neutral conditions. As a result, the new ODN synthesis technology is universally useful for the synthesis of electrophilic ODNs. The dissertation is mainly comprised of two portions. In the first portion, the development of the Dmoc-based linker for ODN synthesis will be described. The construction of the dT-Dmoc-linker required a total of seven steps to synthesize. The linker was then anchored to the solid support―controlled pore glass (CPG). In the second portion, the syntheses of Dmoc-protected phosphoramidites ODN synthesis monomers including Dmoc-dC-amidite, Dmoc-dA-amidite, Dmoc-dG-amidite are described. The protection of dC and dA with 1,3-dithian-2-yl-methyl 4-nitrophenyl carbonate proceeded smoothly giving Dmoc-dC and Dmoc-dA in good yields. However, when the same acylation procedure was applied for the synthesis of Dmoc-dG, very low yield was obtained. This problem was later solved using a highly innovative and environmentally benign procedure, which is expected to be widely useful for the acylation of the exo-amino groups on nucleoside bases. The reactions to convert the Dmoc-protected nucleosides to phosphoramidite monomers proceeded smoothly with high yields. Using the Dmoc phosphoramidite monomers dA, dC, dG and the commercially available dT, and the Dmoc linker, four ODN sequences were synthesized. In all cases, excellent coupling yields were obtained. ODN deprotection/cleavage was achieved by using non-nucleophilic oxidative conditions. The new technology is predicted to be universally useful for the synthesis of ODNs containing one or more electrophilic functionalities.

Simulating dioxane transport in a heterogeneous glacial aquifer system (Washtenaw County, Michigan) using publicly available models and data

The primary challenge in groundwater and contaminant transport modeling is obtaining the data needed for constructing, calibrating and testing the models. Large amounts of data are necessary for describing the hydrostratigraphy in areas with complex geology. Increasingly states are making spatial data available that can be used for input to groundwater flow models. The appropriateness of this data for large-scale flow systems has not been tested. This study focuses on modeling a plume of 1,4-dioxane in a heterogeneous aquifer system in Scio Township, Washtenaw County, Michigan. The analysis consisted of: (1) characterization of hydrogeology of the area and construction of a conceptual model based on publicly available spatial data, (2) development and calibration of a regional flow model for the site, (3) conversion of the regional model to a more highly resolved local model, (4) simulation of the dioxane plume, and (5) evaluation of the model's ability to simulate field data and estimation of the possible dioxane sources and subsequent migration until maximum concentrations are at or below the Michigan Department of Environmental Quality's residential cleanup standard for groundwater (85 ppb). MODFLOW-2000 and MT3D programs were utilized to simulate the groundwater flow and the development and movement of the 1, 4-dioxane plume, respectively. MODFLOW simulates transient groundwater flow in a quasi-3-dimensional sense, subject to a variety of boundary conditions that can simulate recharge, pumping, and surface-/groundwater interactions. MT3D simulates solute advection with groundwater flow (using the flow solution from MODFLOW), dispersion, source/sink mixing, and chemical reaction of contaminants. This modeling approach was successful at simulating the groundwater flows by calibrating recharge and hydraulic conductivities. The plume transport was adequately simulated using literature dispersivity and sorption coefficients, although the plume geometries were not well constrained.

Eruptive history of Maderas volcano using new 40Ar/39Ar ages and geochemical analyses

Maderas volcano is a small, andesitic stratovolcano located on the island of Ometepe, in Lake Nicaragua, Nicaragua with no record of historic activity. Twenty-one samples were collected from lava flows from Maderas in 2010. Selected samples were analyzed for whole-rock geochemical data using ICP-AES and/or were dated using the 40Ar/39Ar method. The results of these analyses were combined with previously collected data from Maderas as well as field observations to determine the eruptive history of the volcano and create a geologic map. The results of the geochemical analyses indicate that Maderas is a typical Central American andesitic volcano similar to other volcanoes in Nicaragua and Costa Rica and to its nearest neighbor, Concepción volcano. It is different from Concepción in one important way – higher incompatible elements. Determined age dates range from 176.8 ± 6.1 ka to 70.5 ± 6.1 ka. Based on these ages and the geomorphology of the volcano which is characterized by a bisecting graben, it is proposed that Maderas experienced two clear generations of development with three separate phases of volcanism: initial build-up of the older cone, pre-graben lava flows, and post-graben lava flows. The ages also indicate that Maderas is markedly older than Concepción which is historically active. Results were also analyzed regarding geologic hazards. The 40Ar/39Ar ages indicate that Maderas has likely been inactive for tens of thousands of years and the risk of future volcanic eruptions is low. However, earthquake, lahar and landslide hazards exist for the communities around the volcano. The steep slopes of the eroded older cone are the most likely source of landslide and lahar hazards.

MAXIMAL ARCS, ABOVE AND BEYOND

This report explores combinatorial structures in Finite Geometries by giving known constructions of maximal arcs; using maximal arcs to construct two-weight codes, partial geometries, strongly regular graphs and LDPC codes; a review on how to generalize maximal arcs to higher dimensions through Perp-Systems; and an effort in finding constructions of new Perp-Systems.