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.

NICKEL-COBALT SOLID SOLUTION AND ITS APPLICATIONS AS CATALYSTS FOR CARBON DIOXIDE REFORMING OF METHANE

Global warming issue becomes more significant to human beings and other organisms on the earth. Among many greenhouse gases, carbon dioxide (CO2) has the largest contribution to global warming. To find an effective way to utilize the greenhouse gas is urgent. It is the best way to convert CO2 to useful compounds. CO2 reforming of methane is an attractive process to convert CO2 and methane into synthesis gas (CO/H2), which can be used as a feedstock for gasoline, methanol, and other hydrocarbons. Nickel and cobalt were found to have good activity for CO2 reforming. However, they have a poor stability due to carbon deposition. This research developed efficient Ni-Co solid solution catalysts with excellent activities and high stability for CO2 reforming of methane. First, the structure of binary oxide solid solution of nickel and cobalt was investigated. It was found that while the calcination of Ni(NO3)2 and Co(NO3)2 mixture with 1:1 molar ratio at a high temperature above 800 oC generated NiO-CoO solid solution, only Ni3O4-Co3O4 solid solution was observed after the calcination at a low temperature of 500 oC. Furthermore, if the calcination was carried out at a medium temperature arranged from 600 to 700 oC, both NiO-CoO and Ni3O4-Co3O4 solid solutions can be formed. This occurred because Co3O4 can induce the formation of Ni3O4, whereas NiO can stabilize CoO. In addition, the lattice parameter of Ni3O4, which was predicted by using Vegard’s Law, is 8.2054 Å. As a very important part of this dissertation, Ni-Co solid solution was evaluated as catalysts for CO2 reforming of methane. It was revealed that nickel-cobalt solid solution showed excellent catalytic performance and high stability for CO2 reforming of methane. However, the stability of Ni-Co solid solution catalysts is strongly dependent on their composition and preparation condition. The optimum composition is 50%Ni-50%Co. Furthermore, the structure of Ni-Co catalysts was characterized by XRD, Vvis, TPR, TPD, BET, AES, TEM, XANES and EXAFS. The relationship between the structure and the catalytic performance was established: (1) The reduced NiO-CoO solid solution possesses better catalytic performance and stability than the reduced Ni3O4-Co3O4 solid solution. (2) Ni is richer on surface in Ni-Co catalysts. And (3) the reduction of Ni-Co-O solid solution generated two types of particles, small and large particles. The small ones are dispersed on large ones as catalytic component.

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.