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.

Suitability comparison of rainwater harvesting and piped water systems in the Dominican Republic

Rainwater harvesting (RWH) has a long history and has been supported as an appropriate technology and relatively cheap source of domestic water supply. This study compares the suitability of RWH and piped water systems in three rural Dominican communities seeking to improve their water systems. Ethnographic methods considering the views of residents and feasibility and cost analysis of the options were used to conclude that RWH is not a feasible or cost-effective solution for domestic water needs of all households in the communities studied. RWH investment is best left to individual households that can implement informal RWH with incremental increases in storage volume. Piped water distribution (PWD) systems perceived as too large or expensive to implement have much lower capital costs and are more supported by residents as a solution because they provide large quantities of water needed to maintain water services beyond mere survival levels.

The Role of Water Chemistry in the Concentration of Hematite Ore

Selective flocculation and dispersion processes rely on differences in the surface chemistry of fine mineral particles (<25 >ìm) to allow for the concentration of specific minerals from an ore body. The effectiveness of selective flocculation and dispersion processes for the concentration of hematite (Fe2O3) ore are strongly dependent on the ionic content of the process water. The goal of this research was to analyze the ionic content of an operating selective flocculation and dispersion type hematite ore concentrator and determine how carbon dioxide affects the filtration of the final product. A detailed water chemistry analysis of the entire process was determined to show concentration profiles throughout the process. This information was used to explain process phenomena and promote future research into this subject. A subsequent laboratory study was conducted to show how carbon dioxide affects filtration rate and relate this effect to the zeta potential of the constituents of the concentrated hematite ore.

A paradigm shift in mechanical biofilm management? Subgingival air polishing: a new way to improve mechanical biofilm management in the dental practice

In the past few years indications for the use of the air polishing technology have been expanded from supragingival use (airflow) to subgingival air polishing (perioflow) by the development of new low-abrasive glycine-based powders and devices with a subgingival nozzle. Several studies on the subgingival use of air polishing have been completed. On 7 June 2012, during the Europerio 7 Congress in Vienna, a consensus conference on mechanical biofilm management took place aiming to review the current evidence from the literature on the clinical relevance of the subgingival use of air polishing and to make practical recommendations for the clinician. Bernita Bush (Bern), Prof Johannes Einwag (Stuttgart), Prof Thomas Flemmig (Seattle), Carmen Lanoway (Munich), Prof Ursula Platzer (Hamburg), Prof Petra Schmage (Hamburg), Brigitte Schoeneich (Zurich), Prof Anton Sculean (Bern), Dr Clemens Walter (Basel), and Prof Jan Wennström (Gothenburg) discussed under the moderation of Klaus-Dieter Bastendorf and Christian Becker (both ADIC Association for Dental Infection Control) the available clinical studies to reach a consensus on available clinical evidence. This paper summarizes the main conclusions of the consensus conference and points to the clinical relevance of the findings for the dental practitioner.

Participation in Further Education over the Life Course: a longitudinal study of three birth cohorts in the Federal Republic of Germany

In this paper we address the issue of who is most likely to participate in further training, for what reasons and at what stage of the life course. Special emphasis is given to the impact of labour-market policies to encourage further education and a person's individual or cohort possibilities to participate in further education. We apply a Cox proportional hazard model to data from the West German Life History Study, separately for women and men, within and outside the firm. Younger cohorts show not only higher proportions of participation in further education and training at early stages of the life course, they also continue to participate in higher numbers during later stages of the life course. General labour-force participation reduces and tenure with the same firm increases the propensity to participate in further education and training. Contrary to expectations, in Germany labour-market segmentation has been enhanced rather than reduced by further education and training policies, since in the firm-specific labour-market segment, i.e. skilled jobs in large firms, and in the public sector both women and men had a higher probability of participation. Particularly favourable conditions for participation in further education outside the firm prevailed during the first years of the labour promotion act (Arbeitsförderungsgesetz) between 1969 and 1974, but women did not benefit to the same extent as men. Training policies are, therefore, in need of continuous assessment based on a goal-achievement evaluation to avoid any unintended effects of such policies.

Using 18O/2H, 3H/3He, 85Kr and CFCs to determine mean residence times and water origin in the Grazer and Leibnitzer Feld groundwater bodies (Austria)

Two groundwater bodies, Grazer Feld and Leibnitzer Feld, with surface areas of 166 and 103 km2 respectively are characterised for the first time by measuring the combination of d18O/d2H, 3H/3He, 85Kr, CFC-11, CFC-12 and hydrochemistry in 34 monitoring wells in 2009/2010. The timescales of groundwater recharge have been characterised by 131 d18O measurements of well and surface water sampled on a seasonal basis. Most monitoring wells show a seasonal variation or indicate variable contributions of the main river Mur (0–30%, max. 70%) and/or other rivers having their recharge areas in higher altitudes. Combined d18O/d2H-measurements indicate that 65–75% of groundwater recharge in the unusual wet year of 2009 was from precipitation in the summer based on values from the Graz meteorological station. Monitoring wells downstream of gravel pit lakes show a clear evaporation trend. A boron–nitrate differentiation plot shows more frequent boron-rich water in the more urbanised Grazer Feld and more frequent nitrate-rich water in the more agricultural used Leibnitzer Feld indicating that a some of the nitrate load in the Grazer Feld comes from urban sewer water. Several lumped parameter models based on tritium input data from Graz and monthly data from the river Mur (Spielfeld) since 1977 yield a Mean Residence Time (MRT) for the Mur-water itself between 3 and 4 years in this area. Data from d18O, 3H/3He measurements at the Wagna lysimeter station supports the conclusion that 90% of the groundwaters in the Grazer Feld and 73% in the Leibnitzer Feld have MRTs of <5 years. Only in a few groundwaters were MRTs of 6–10 or 11–25 years as a result of either a long-distance water inflow in the basins or due to longer flow path in somewhat deeper wells (>20 m) with relative thicker unsaturated zones. The young MRT of groundwater from two monitoring wells in the Leibnitzer Feld was confirmed by 85Kr-measurements. Most CFC-11 and CFC-12 concentrations in the groundwater exceed the equilibration concentrations of modern concentrations in water and are therefore unsuitable for dating purposes. An enrichment factor up to 100 compared to atmospheric equilibrium concentrations and the obvious correlation of CFC-12 with SO4, Na, Cl and B in the ground waters of the Grazer Feld suggest that waste water in contact with CFC-containing material above and below ground is the source for the contamination. The dominance of very young groundwater (<5 years) indicates a recent origin of the contamination by nitrate and many other components observed in parts of the groundwater bodies. Rapid measures to reduce those sources are needed to mitigate against further deterioration of these waters.