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.

Study of water use and supply in the district of Independencia, Peru

Peru is a developing country with abundant fresh water resources, yet the lack of infrastructure leaves much of the population without access to safe water for domestic uses. The author of this report was a Peace Corps Volunteer in the sector of water & sanitation in the district of Independencia, Ica, Peru. Independencia is located in the arid coastal region of the country, receiving on average 15 mm of rain annually. The water source for this district comes from the Pisco River, originating in the Andean highlands and outflowing into the Pacific Ocean near the town of Pisco, Peru. The objectives of this report are to assess the water supply and sanitation practices, model the existing water distribution system, and make recommendations for future expansion of the distribution system in the district of Independencia, Peru. The assessment of water supply will be based on the results from community surveys done in the district of Independencia, water quality testing done by a detachment of the U.S. Navy, as well as on the results of a hydraulic model built in EPANET 2.0 to represent the distribution system. Sanitation practice assessments will be based on the surveys as well as observations from the author while living in Peru. Recommendations for system expansions will be made based on results from the EPANET model and the municipality’s technical report for the existing distribution system. Household water use and sanitation surveys were conducted with 84 families in the district revealing that upwards of 85% store their domestic water in regularly washed containers with lids. Over 80% of those surveyed are drinking water that is treated, mostly boiled. Of those surveyed, over 95% reported washing their hands and over 60% mentioned at least one critical time for hand washing when asked for specific instances. From the surveys, it was also discovered that over 80% of houses are properly disposing of excrement, in either latrines or septic tanks. There were 43 families interviewed with children five years of age or under, and just over 18% reported the child had a case of diarrhea within the last month at the time of the interview. Finally, from the surveys it was calculated that the average water use per person per day is about 22 liters. Water quality testing carried out by a detachment of the U.S. Navy revealed that the water intended for consumption in the houses surveyed was not suitable for consumption, with a median E. coli most probable number of 47/100 ml for the 61 houses sampled. The median total coliforms was 3,000 colony forming units per 100 ml. EPANET was used to simulate the water delivery system and evaluate its performance. EPANET is designed for continuous water delivery systems, assuming all pipes are always flowing full. To account for the intermittent nature of the system, multiple EPANET network models were created to simulate how water is routed to the different parts of the system throughout the day. The models were created from interviews with the water technicians and a map of the system created using handheld GPS units. The purpose is to analyze the performance of the water system that services approximately 13,276 people in the district of Independencia, Peru, as well as provide recommendations for future growth and improvement of the service level. Performance evaluation of the existing system is based on meeting 25 liters per person per day while maintaining positive pressure at all nodes in the network. The future performance is based on meeting a minimum pressure of 20 psi in the main line, as proposed by Chase (2000). The EPANET model results yield an average nodal pressure for all communities of 71 psi, with a range from 1.3 – 160 psi. Thus, if the current water delivery schedule obtained from the local municipality is followed, all communities should have sufficient pressure to deliver 25 l/p/d, with the exception of Los Rosales, which can only supply 3.25 l/p/d. However, if the line to Los Rosales were increased from one to four inches, the system could supply this community with 25 l/p/d. The district of Independencia could greatly benefit from increasing the service level to 24-hour water delivery and a minimum of 50 l/p/d, so that communities without reliable access due to insufficient pressure would become equal beneficiaries of this invaluable resource. To evaluate the feasibility of this, EPANET was used to model the system with a range of population growth rates, system lifetimes, and demands. In order to meet a minimum pressure of 20 psi in the main line, the 6-inch diameter main line must be increased and approximately two miles of trench must be excavated up to 30 feet deep. The sections of the main line that must be excavated are mile 0-1 and 1.5-2.5, and the first 3.4 miles of the main line must be increased from 6 to 16 inches, contracting to 10 inches for the remaining 5.8 miles. Doing this would allow 24-hour water delivery and provide 50 l/p/d for a range of population growth rates and system lifetimes. It is expected that improving the water delivery service would reduce the morbidity and mortality from diarrheal diseases by decreasing the recontamination of the water due to transport and household storage, as well as by maintaining continuous pressure in the system to prevent infiltration of contaminated groundwater. However, this expansion must be carefully planned so as not to affect aquatic ecosystems or other districts utilizing water from the Pisco River. It is recommended that stream gaging of the Pisco River and precipitation monitoring of the surrounding watershed is initiated in order to begin a hydrological study that would be integrated into the district’s water resource planning. It is also recommended that the district begin routine water quality testing, with the results available to the public.

CRITERIA FOR SUSTAINABLE PRODUCT DESIGN WITH 3D PRINTING IN THE DEVELOPING WORLD

The demand for consumer goods in the developing world continues to rise as populations and economies grow. As designers, manufacturers, and consumers look for ways to address this growing demand, many are considering the possibilities of 3D printing. Due to 3D printing’s flexibility and relative mobility, it is speculated that 3D printing could help to meet the growing demands of the developing world. While the merits and challenges of distributed manufacturing with 3D printing have been presented, little work has been done to determine the types of products that would be appropriate for such manufacturing. Inspired by the author’s two years of Peace Corps service in the Tanzania and the need for specialty equipment for various projects during that time, an in-depth literature search is undertaken to better understand and summarize the process and capabilities of 3D printing. Human-centered design considerations are developed to focus on the product desirability, the technical feasibility, and the financial viability of using 3D printing within Tanzania. Beginning with concerns of what Tanzanian consumers desire, many concerns later arise in regards to the feasibility of creating products that would be sufficient in strength and quality for the demands of developing world consumers. It is only after these concerns are addressed that the viability of products can be evaluated from an economic perspective. The larger impacts of a product beyond its use are vital in determining how it will affect the social, economic, and environmental well-being of a developing nation such as Tanzania. Thus technology specific criteria are necessary for assessing and quantifying the broader impacts that a 3D-printed product can have within its ecosystem, and appropriate criteria are developed for this purpose. Both sets of criteria are then demonstrated and tested while evaluating the desirability, feasibility, viability, and sustainability of printing a piece of equipment required for the author’s Peace Corps service: a set of Vernier calipers. Required for science educators throughout the country, specialty equipment such as calipers initially appear to be an ideal candidate for 3D printing, though ultimately the printing of calipers is not recommended due to current restrictions in the technology. By examining more specific challenges and opportunities of the products 3D printing can produce, it can be better determined what place 3D printing will have in manufacturing for the developing world. Furthermore, the considerations outlined in this paper could be adapted for other manufacturing technologies and regions of the world, as human centered design and sustainability will be critical in determining how to supply the developing world with the consumer goods it demands.

Afghanistan connection : heroin production, distribution, and consumption

Heroin prices are a reflection of supply and demand, and similar to any other market, profits motivate participation. The intent of this research is to examine the change in Afghan opium production due to political conflict affecting Europe’s heroin market and government policies. If the Taliban remain in power, or a new Afghan government is formed, the changes will affect the heroin market in Europe to a certain degree. In the heroin market, the degree of change is dependent on many socioeconomic forces such as law enforcement, corruption, and proximity to Afghanistan. An econometric model that examines the degree of these socioeconomic effects has not been applied to the heroin trade in Afghanistan before. This research uses a two-stage least squares econometric model to reveal the supply and demand of heroin in 36 different countries from the Middle East to Western Europe in 2008. An application of the two-stage least squares model to the heroin market in Europe will attempt to predict the socioeconomic consequences of Afghanistan opium production.

Enzyme engineering of aminotransferases for improved activity and thermostability

The production by biosynthesis of optically active amino acids and amines satisfies the pharmaceutical industry in its demand for chiral building blocks for the synthesis of various pharmaceuticals. Among several enzymatic methods that allow the synthesis of optically active aminoacids and amines, the use of minotransferase is a promising one due to its broad substrate specificity and no requirement for external cofactor regeneration. The synthesis of chiral compounds by aminotransferases can be done either by asymmetric synthesis starting from keto acids or ketones, and by kinetic resolution starting from racemic aminoacids or amines. The asymmetric synthesis of substituted (S)-aminotetralin, an active pharmaceutical ingredient (API), has shown to have two major factors that contribute to increasing the cost of production. These factors are the raw material cost of biocatalyst used to produce it and product loss during biocatalyst separation. To minimize the cost contribution of biocatalyst and to minimize the loss of product, two routes have been chosen in this research: 1. To engineer the aminotransferase biocatalyst to have greater specific activity, and 2. Improve the engineering of the process by immobilization of biocatalyst in calcium alginate and addition of cosolvents. An (S)-aminotransferase (Mutant CNB03-03) was immobilized, not as purified enzyme but as enzyme within spray dried cells, in calcium alginate beads and used to produce substituted (S)-aminotetralin at 50 °C and pH 7 in experiments where the immobilized biocatalyst was recycled. Initial rate of reaction for cycle 1 (6 hr duration) was determined to be 0.258 mM/min, for cycle 2 (20 hr duration) it decreased by ~50% compared to cycle 1, and for cycle 3 (20 hr duration) it decreased by ~90% compared to cycle 1 (immobilized preparation consisted of 50 mg of spray dried cells per gram of calcium alginate). Conversion to product for each cycle decreased as well, from 100% in cycle 1 (About 50 mM), 80% in cycle 2, and 30% after cycle 3. This mutant was determined to be deactivated at elevated temperatures during the reaction cycle and was not stable enough to allow multiple cycles in its immobilized form. A new mutant aminotransferase was isolated by applying error-prone polymerase chain reaction (PCR) on the gene coding for this enzyme and screening/selection: CNB04-01. This mutant showed a significant improvement in thermostability in comparison to CNB03-03. The new mutant was immobilized and tested under similar reaction conditions. Initial rate remained fairly constant (0.2 mM/min) over four cycles (each cycle with a duration of about 20 hours) with the mutant retaining almost 80% of initial rate in the fourth cycle. The final product concentrations after each cycle did not decrease during recycle experiments. Thermostability of CNB04-01 was much improved compared to CNB03-03. Under the same reaction conditions as stated above, the addition of co-solvents was studied in order to increase substituted tetralone solubility. Toluene and sodium dodecylsulfate (SDS) were used. SDS at 0.01% (w/v) allowed four recycles of the immobilized spray dried cells of CNB04-01, always reaching higher product concentration (80-85 mM) than the system with toluene at 3% (v/v) -70 mM-. The long term activity of immobilized CNB04-01 in a system with SDS 0.01% (w/v) at 50 °C, pH 7 was retained for three cycles (20 to 24 hours each one), reaching always final product concentration between 80-85 mM, but dropping precipitously in the fourth cycle to a final product concentration of 50 mM. Although significant improvement of immobilization on productivity and stability were observed using CNB04-01, another observation demonstrated the limitations of an immobilization strategy on reducing process costs. After analyzing the results of this experiment it was seen that a sudden drop occurred on final product concentration after the third recycle. This was due to product accumulation inside the immobilized preparation. In order to improve the economics of the process, research was focused on developing a free enzyme with an even higher activity, thus reducing raw material cost as well as improving biomass separation. A new enzyme was obtained (CNB05-01) using error-prone PCR and screening using as a template the gene derived from the previous improved enzyme. This mutant was determined to have 1.6 times the initial rate of CNB04-01 and had a higher temperature optimum (55°). This new enzyme would allow reducing enzyme loading in the reaction by five-fold compared to CNB03-03, when using it at concentration of one gram of spray dried cells per liter (completing the reaction after 20-24 hours). Also this mutant would allow reducing process time to 7-8 hours when used at a concentration of 5 grams of spray dried cells per liter compared to 24 hours for CNB03-03, assuming that the observations shown before are scalable. It could be possible to improve the economics of the process by either reducing enzyme concentration or reducing process time, since the production cost of the desired product is primarily a function of both enzyme concentration and process time.

Numerical investigation of effects of addition of ethanol to gasoline on Laminar Flame Speed (LFS), autoignition, and wall quenching

Since the advent of automobiles, alcohol has been considered a possible engine fuel1,2. With the recent increased concern about the high price of crude oil due to fluctuating supply and demand and environmental issues, interest in alcohol based fuels has increased2,3. However, using pure alcohols or blends with conventional fuels in high percentages requires changes to the engine and fuel system design2. This leads to the need for a simple and accurate conventional fuels-alcohol blends combustion models that can be used in developing parametric burn rate and knock combustion models for designing more efficient Spark Ignited (SI) engines. To contribute to this understanding, numerical simulations were performed to obtain detailed characteristics of Gasoline-Ethanol blends with respect to Laminar Flame Speed (LFS), autoignition and Flame-Wall interactions. The one-dimensional premixed flame code CHEMKIN® was applied to simulate the burning velocity and autoignition characteristics using the freely propagating model and closed homogeneous reactor model respectively. Computational Fluid Dynamics (CFD) was used to obtain detailed flow, temperature, and species fields for Flame-wall interactions. A semi-detailed validated chemical kinetic model for a gasoline surrogate fuel developed by Andrae and Head4 was used for the study of LFS and Autoignition. For the quenching study, a skeletal chemical kinetic mechanism of gasoline surrogate, having 50 species and 174 reactions was used. The surrogate fuel was defined as a mixture of pure n-heptane, isooctane, and toluene. For LFS study, the ethanol volume fraction was varied from 0 to 85%, initial pressure from 4 to 8 bar, initial temperature from 300 to 900K, and dilution from 0 to 32%. Whereas for Autoignition study, the ethanol volume fraction was varied between 0 to 85%, initial pressure was varied between 20 to 60 bar, initial temperature was varied between 800 to 1200K, and the dilution was varied between 0 to 32% at equivalence ratios of 0.5, 1.0 and 1.5 to represent the in-cylinder conditions of a SI engine. For quenching study three Ethanol blends, namely E0, E25 and E85 are described in detail at an initial pressure of 8 atm and 17 atm. Initial wall temperature was taken to be 400 K. Quenching thicknesses and heat fluxes to the wall were computed. The laminar flame speed was found to increase with ethanol concentration and temperature but decrease with pressure and dilution. The autoignition time was found to increase with ethanol concentration at lower temperatures but was found to decrease marginally at higher temperatures. The autoignition time was also found to decrease with pressure and equivalence ratio but increase with dilution. The average quenching thickness was found to decrease with an increase in Ethanol concentration in the blend. Heat flux to the wall increased with increase in ethanol percentage in the blend and at higher initial pressures. Whereas the wall heat flux decreased with an increase in dilution. Unburned Hydrocarbon (UHC) and CO % was also found to decrease with ethanol concentration in the blend.

EXAMINING POLICY CAPACITY INITIATIVES WITHIN CLIMATE CHANGE FRAMEWORKS IN THREE US AND CANADIAN SECTORS USING NVIVO CONTENT ANALYSIS

The climate change narrative has changed from one of mitigation to one of adaptation. Governments around the world have created climate change frameworks which address how the country can better cope with the expected and unexpected changes due to global climate change. In an effort to do so, federal governments of Canada and the United States, as well as some provinces and states within these countries, have created detailed documents which outline what steps must be taken to adapt to these changes. However, not much is mentioned about how these steps will be translated in to policy, and how that policy will eventually be implemented. To examine the ability of governments to acknowledge and incorporate the plethora of scientific information to policy, consideration must be made for policy capacity. This report focuses on three sectors: water supply and demand; drought and flood planning; and forest and grassland ecosystems, and the word ‘capacity’ as related to nine different forms of policy capacity acknowledged in these frameworks. Qualitative content analysis using NVivo was carried out on fifty four frameworks and the results obtained show that there is a greater consideration for managerial capacity compared to analytical or political capacity. The data also indicated that although there were more Canadian frameworks which referred to policy capacity, the frameworks from the United States actually considered policy capacity to a greater degree.