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.

Management impacts on Carex assiniboinensis and Cardamine concatenata on the Ottawa National Forest

Monitoring of herbaceous plants on the Ottawa National Forest (ONF) is used to understand the impact of forest management on understory composition and site conditions. In their planning, national forests are required to take into account management impacts on diversity and ecosystem health. The effect of management on understory species is dependent on various factors, including the intensity of disturbance and the biology of the plant. In the first study in this report, a population of Carex assiniboinensis, a Michigan state threatened species, was monitored for seven seasons including before logging commenced, in order to determine the sedge’s response to a single-tree selection harvest. Analyses provided insights for management of C. assiniboinensis at the stand level over the short-term. In the second study in this report, the use of the cutleaf toothwort (Cardamine concatenata) as a Management Indicator Species on the ONF was reviewed. Data were analyzed to determine the suitability of using C. concatenata to monitor impacts of forest management on site conditions. The various factors that affect understory species population dynamics illuminated the challenges of using indicator species to monitor site conditions. Insights from the study provide a greater understanding of management impacts on understory species across the Ottawa National Forest.

Perceptions of water conditions and management in the Sonora River Basin, Sonora, Mexico

The effects of climate change are expected to be very severe in arid regions. The Sonora River Basin, in the northwestern state of Sonora, Mexico, is likely to be severely affected. Some of the anticipated effects include precipitation variability, intense storm events, higher overall temperatures, and less available water. In addition, population in Sonora, specifically the capital city of Hermosillo, is increasing at a 1.5% rate and current populations are near 700,000. With the reduction in water availability and an increase in population, Sonora, Mexico is expected to experience severe water resource issues in the near future. In anticipation of these changes, research is being conducted in an attempt to improve water management in the Sonora River Basin, located in the northwestern part of Sonora. This research involves participatory modeling techniques designed to increase water manager awareness of hydrological models and their use as integrative tools for water resource management. This study was conducted as preliminary research for the participatory modeling grant in order to gather useful information on the population being studied. This thesis presents research from thirty-four in-depth interviews with water managers, citizens, and agricultural producers in Sonora, Mexico. Data was collected on perceptions of water quantity and quality in the basin, thoughts on current water management practices, perceptions of climate change and its management, experience with, knowledge of, and trust in hydrological models as water management tools. Results showed that the majority of interviewees thought there was not enough water to satisfy their daily needs. Most respondents also agreed that the water available was of good quality, but that current management of water resources was ineffective. Nearly all interviewees were aware of climate change and thought it to be anthropogenic. May reported experiencing higher temperatures, precipitation changes, and higher water scarcity and attributed those fluctuations to climate change. 65% of interviewees were at least somewhat familiar with hydrological models, though only 28% had ever used them or their output. Even with model usage results being low, 100% of respondents believed hydrological models to be very useful water management tools. Understanding how water, climate change, and hydrological models are perceived by this population of people is essential to improving their water management practices in the face of climate change.

Understanding Michigan nonindustrial private forest landowners attitudes and knowledge about forest management

Approximately one-fourth of the non-industrial private forestland (NIPF) owners in the state of Michigan, who collectively own approximately 50% of the private forested land, have conducted commercial timber harvest in recent years. Previous studies indicated that NIPFs preferred to manage their forest for a sustained yield of high-quality timber, but were limited to even-aged regeneration treatments or conversion for uneven-aged silviculture due to previous cuttings. Improved knowledge about NIPF’s intentions and forest management behavior could be useful for successful implementation of sustained yield management. This study’s objective was to identify more active NIPF’s attitudes towards timber management, their forest management practices and whether their forest management behavior leads or leads not to q management for sustained yield. Active NIPF’s intentions to harvest timber for biofuels and its suitability with NIPF’s forest management behavior will be discussed. Phone interviews of 30 NIPFs who have experience with commercial timber harvests were conducted between August and October 2011. All interviews were recorded, transcribed, and analyzed for identifying NIPF’s motivations, attitudes, forest management behavior and forestry related knowledge. Interviewees, whether consciously or not, tended to manage their land for a sustained yield and they would be willing to harvest timber for biofuels facility as long as it benefits landowners management goals.

Small-scale timber stand management techniques : a case study of woodlots in Isangati, Tanzania

Small-scale village woodlots of less than 0.5ha are the preferred use of land for local farmers with extra land in the village of Isangati, a small community located in the southern highlands of Tanzania. Farmers view woodlots as lucrative investments that do not involve intensive labor or time. The climate is ideal for the types of trees grown and the risks are minimal with no serious threats from insects, fires, thieves, or grazing livestock. It was hypothesized that small-scale village woodlot owners were not maximizing timber outputs with their current timber stand management and harvesting techniques. Personal interviews were conducted over a five month period and field data was collected at each farmer’s woodlots over a seven month period. Woodlot field data included woodlot size, number of trees, tree species, tree height, dbh, age, and spacing. The results indicated that the lack of proper woodlot management techniques results in failure to fully capitalize on the investment of woodlots. While farmers should continue with their current harvesting rotations, some of the reasons for not maximizing tree growth include close spacing (2m x 2m), no tree thinning, extreme pruning (60% of tree), and little to no weeding. Through education and hands-on woodlot management workshops, the farmers could increase their timber output and value of woodlots.

Effects of management on native and exotic plant communities in Pictured Rocks National Lakeshore in the Upper Peninsula of Michigan

Ecological disturbances may be caused by a range of biotic and abiotic factors. Among these are disturbances that result from human activities such as the introduction of exotic plants and land management activities. This dissertation addresses both of these types of disturbance in ecosystems in the Upper Peninsula of Michigan. Invasive plants are a significant cause of disturbance at Pictured Rocks Natural Lakeshore. Management of invasive plants is dependent on understanding what areas are at risk of being invaded, what the consequences of an invasion are on native plant communities and how effective different tools are for managing the invasive species. A series of risk models are described that predict three stages of invasion (introduction, establishment and spread) for eight invasive plant species at Pictured Rocks National Lakeshore. These models are specific to this location and include species for which models have not previously been produced. The models were tested by collecting point data throughout the park to demonstrate their effectiveness for future detection of invasive plants in the park. Work to describe the impacts and management of invasive plants focused on spotted knapweed in the sensitive Grand Sable Dunes area of Pictured Rocks National Lakeshore. Impacts of spotted knapweed were assessed by comparing vegetation communities in areas with varying amounts of spotted knapweed. This work showed significant increases in species diversity in areas invaded by knapweed, apparently as a result of the presence of a number of non-dune species that have become established in spotted knapweed invaded areas. An experiment was carried out to compare annual spot application of two herbicides, Milestone® and Transline® to target spotted knapweed. This included an assessment of impacts of this type of treatment on non-target species. There was no difference in the effectiveness of the two herbicides, and both significantly reduced the density of spotted knapweed during the course of the study. Areas treated with herbicide developed a higher percent cover of grasses during the study, and suffered limited negative impacts on some sensitive dune species such as beach pea and dune stitchwort, and on some other non-dune species such as hawkweed. The use of these herbicides to reduce the density of spotted knapweed appears to be feasible over large scales.

INTEGRATED MANAGEMENT OF THE INVASIVE SPECIES CIRSIUM ARVENSE, CANADA THISTLE, AND PHRAGMITES AUSTRALIS, COMMON REED: USING ECOLOGICALLY BASED CONTROL MEASURES AT EACH STAGE OF THE INVASION PROCESS

Invasive plant species threaten natural areas by reducing biodiversity and altering ecosystem functions. They also impact agriculture by reducing crop and livestock productivity. Millions of dollars are spent on invasive species control each year, and traditionally, herbicides are used to manage invasive species. Herbicides have human and environmental health risks associated with them; therefore, it is essential that land managers and stakeholders attempt to reduce these risks by utilizing the principles of integrated weed management. Integrated weed management is a practice that incorporates a variety of measures and focuses on the ecology of the invasive plant to manage it. Roadways are high risk areas that have high incidence of invasive species. Roadways act as conduits for invasive species spread and are ideal harborages for population growth; therefore, roadways should be a primary target for invasive species control. There are four stages in the invasion process which an invasive species must overcome: transport, establishment, spread, and impact. The aim of this dissertation was to focus on these four stages and examine the mechanisms underlying the progression from one stage to the next, while also developing integrated weed management strategies. The target species were Phragmites australis, common reed, and Cisrium arvense, Canada thistle. The transport and establishment risks of P. australis can be reduced by removing rhizome fragments from soil when roadside maintenance is performed. The establishment and spread of C. arvense can be reduced by planting particular resistant species, e.g. Heterotheca villosa, especially those that can reduce light transmittance to the soil. Finally, the spread and impact of C. arvense can be mitigated on roadsides through the use of the herbicide aminopyralid. The risks associated with herbicide drift produced by application equipment can be reduced by using the Wet-Blade herbicide application system.

Effects of forest management and time on herbaceous species dynamics in the western Upper Peninsula of Michigan

The herbaceous layer is a dynamic layer in a forest ecosystem which often contains the highest species richness in northern temperate forests. Few long-term studies exist in northern hardwood forests with consistent management practices to observe herbaceous species dynamics. The Ford Forest (Michigan Technological University) reached its 50th year of management during the winter of 2008-2009. Herbaceous species were sampled during the summers pre- and post-harvest. Distinct herbaceous communities developed in the 13-cm diameter-limit treatment and the uncut control. After the harvest, the diameter-limit treatments had herbaceous communities more similar to the 13-cm diameter-limit treatment than the uncut control; the herbaceous layer contained more exotic and early successional species. Fifty years of continuous management changed the herbaceous community especially in the diameter-limit treatments. Sites used in the development of habitat classification systems based on the presence and absence of certain herbaceous species can also be used to monitor vegetation change over time. The Guide to Forest Communities and Habitat Types of Michigan was developed to aid forest managers in understanding the potential productivity of a stand, and often aid in the development of ecologically-based forest management practices. Subsets of plots used to create the Western Upper Peninsula Guide were resampled after 10 years. During the resampling, both spring and summer vegetation were sampled and earthworm populations were estimated through liquid extraction. Spring sampling observed important spring ephemerals missed during summer sampling. More exotic species were present during the summer 2010 sampling than the summer 2000 sampling. Invasive European earthworms were also observed at all sample locations in all habitat types; earthworm densities increased with increasing habitat richness. To ensure the accuracy of the guide book, plots should be monitored to see how herbaceous communities are changing. These plots also offer unique opportunities to monitor for invasive species and the effects of a changing climate.

Preserving and interpreting the mining company office : landscape, space and technological change in the management of the copper industry

The purpose of this research is to examine the role of the mining company office in the management of the copper industry in Michigan’s Keweenaw Peninsula between 1901 and 1946. Two of the largest and most influential companies were examined – the Calumet & Hecla Mining Company and the Quincy Mining Company. Both companies operated for more than forty years under general managers who were arguably the most influential people in the management of each company. James MacNaughton, general manager at Calumet and Hecla, worked from 1901 through 1941; Charles Lawton, general manager at Quincy Mining Company, worked from 1905 through 1946. In this case, both of these managers were college-educated engineers and adopted scientific management techniques to operate their respective companies. This research focused on two main goals. The first goal of this project was to address the managerial changes in Michigan’s copper mining offices of the early twentieth century. This included the work of MacNaughton and Lawton, along with analysis of the office structures themselves and what changes occurred through time. The second goal of the project was to create a prototype virtual exhibit for use at the Quincy Mining Company office. A virtual exhibit will allow visitors the opportunity to visit the office virtually, experiencing the office as an office worker would have in the early twentieth century. To meet both goals, this project used various research materials, including archival sources, oral histories, and material culture to recreate the history of mining company management in the Copper Country.

Local Use and Management of Tasba (Senna obtusifolia) in the Traditional Food System of Sanguere Paul, North Cameroon

The purpose of this study is to examine the importance of the wild edible weed tasba (Senna obtusifolia) in Sanguéré Paul, Cameroon by examining how households use and manage the plant. This study found that local management of tasba is minimal compared to other traditional vegetables. Tasba was collected most frequently from en brousse or the communal, fallowed land which is often too degraded for traditional field crops to grow. Women subsistence farmers were closely involved with tasba as they are the ones responsible for food production within the family. Socioeconomic differences between women affects how they manage tasba and other vegetables to form a livelihood strategy to achieve food security within the family. Modifications and changes in management and use of tasba are influenced by time, proximity and income based on her perspective, preferences and resources available. Overall, tasba is an integral part of the traditional food system in Sanguéré Paul, and can play a role in the uncertain ecological and social setting of northern Cameroon.

Quincy and Torch Lake Railroad engine house facility management and interpretive plan

The “Quincy & Torch Lake Railroad Engine House Facility Management and Interpretive Plan" was designed to serve as a guide to aid the Quincy Mine Hoist Association in their efforts to restore and interpret historic railroad resources under their stewardship. Early searches for existing management and interpretive plans demonstrated that similar plans were primarily produced by the National Park Service and were intended to guide large scale heritage sites that consist of a variety of cultural resources. This project adapts concepts found in those large scale management and interpretive site plans, to guide small scale site management, restoration, and interpretive projects. The document presents a three stage, second phase restoration process. Each stage of development is guided by a series of management and interpretive goals and objectives which were set for the engine house facility.