Private Equity as an Asset Class

Preface xix    Acknowledgements xxiii     About the Editors xxv     List of Contributors xxvii     PART ONE Commodity Markets and Products     CHAPTER 1 Oil Markets and Products 3 Cristiano Campi and Francesco Galdenzi     1.1 Introduction 3     1.2 Risk Management for Corporations: Hedging Using Derivative Instruments 4     1.2.1 Crude Oil and Oil Products Risk Management for Corporations 4     1.3 Oil Physical Market Hedging and Trading 41     Further Reading 66     CHAPTER 2 Coal Markets and Products 67 Lars Schernikau     2.1 Introduction 67     2.2 Source of Coal     Synopsis of the Resource Coal 72     2.3 Use of Coal     Power Generation and More 90     2.4 Overview of Worldwide Steam Coal Supply and Demand 102     2.5 The Global Steam Coal Trade Market and its Future 121     2.6 Concluding Words 129     Abbreviations and Definitions 130     Acknowledgements 132     References 132     CHAPTER 3 Natural Gas Markets and Products 135 Mark Cummins and Bernard Murphy     3.1 Physical Natural Gas Markets 135     3.2 Natural Gas Contracting and Pricing 154     3.3 Financial Natural Gas Markets 158     References 180     CHAPTER 4 Electricity Markets and Products 181 Stefano Fiorenzani, Bernard Murphy and Mark Cummins     4.1 Market Structure and Price Components 181     4.2 Renewables, Intra-Day Trading and Capacity Markets 205     4.3 Risk Measures for Power Portfolios 216     References 221     Further Reading 221     CHAPTER 5 Emissions Markets and Products 223 Marc Chesney, Luca Taschini and Jonathan Gheyssens     5.1 Introduction 223     5.2 Climate Change and the Economics of Externalities 224     5.3 The Kyoto Protocol 227     5.4 The EU ETS 232     5.5 Regional Markets: A Fragmented Landscape 239     5.6 A New Asset Class: CO2 Emission Permits 241     Abbreviations 252     References 252     CHAPTER 6 Weather Risk and Weather Derivatives 255 Alessandro Mauro     6.1 Introduction 255     6.2 Identification of Volumetric Risk 257     6.3 Atmospheric Temperature and Natural Gas Market 264     6.4 Modification of Weather Risk Exposure with Weather Derivatives 272     6.5 Conclusions 276     Nomenclature 277     References 277     CHAPTER 7 Industrial Metals Markets and Products 279 Alessandro Porru     7.1 General Overview 279     7.2 Forward Curves 305     7.3 Volatility 337     Acknowledgements 352     References 353     Further Reading 353     CHAPTER 8 Freight Markets and Products 355 Manolis G. Kavussanos, Ilias D. Visvikis and Dimitris N. Dimitrakopoulos     8.1 Introduction 355     8.2 Business Risks in Shipping 356     8.3 Freight Rate Derivatives 366     8.4 Pricing, Hedging and Freight Rate Risk Measurement 382     8.5 Other Derivatives for the Shipping Industry 393     8.6 Conclusion 396     Acknowledgements 396     References 397     CHAPTER 9 Agricultural and Soft Markets 399 Francis Declerk     9.1 Introduction: Stakes and Objectives 399     9.2 Agricultural Commodity Specificity and Futures Markets 400     9.3 Demand and Supply, Price Determinants and Dynamics 409     9.4 Hedging and Basis Management 466     9.5 The Financialization of Agricultural Markets and Hunger: Speculation and Regulation 480     9.6 Conclusion about Hedging and Futures Contracts 493     References 495     Further Reading 496     Glossary, Quotations and Policy on Websites 497     CHAPTER 10 Foreign Exchange Markets and Products 499 Antonio Castagna     10.1 The FX Market 499     10.2 Pricing Models for FX Options 509     10.3 The Volatility Surface 511     10.4 Barrier Options 512     10.5 Sources of FX Risk Exposure 513     10.6 Hedging FX Exposures Embedded in Energy and Commodity Contracts 517     10.7 Typical Hedging Structures for FX Risk Exposure 533     References 553     PART TWO Quantitative Topics     CHAPTER 11 An Introduction to Stochastic Calculus with Matlab(R) Examples 557 Laura Ballotta and Gianluca Fusai     11.1 Brownian Motion 558     11.2 The Stochastic Integral and Stochastic Differential Equations 566     11.3 Introducing It  o   s Formula 575     11.4 Important SDEs 581     11.5 Stochastic Processes with Jumps 618     References 633     Further Reading 633     CHAPTER 12 Estimating Commodity Term Structure Volatilities 635 Andrea Roncoroni, Rachid Id Brik and Mark Cummins     12.1 Introduction 635     12.2 Model Estimation Using the Kalman Filter 635     12.3 Principal Components Analysis 646     12.4 Conclusion 655     Appendix 655     References 657     CHAPTER 13 Nonparametric Estimation of Energy and Commodity Price Processes 659 Gianna Figa-Talamanca and Andrea Roncoroni     13.1 Introduction 659     13.2 Estimation Method 660     13.3 Empirical Results 663     References 672     CHAPTER 14 How to Build Electricity Forward Curves 673 Ruggero Caldana, Gianluca Fusai and Andrea Roncoroni     14.1 Introduction 673     14.2 Review of the Literature 674     14.3 Electricity Forward Contracts 675     14.4 Smoothing Forward Price Curves 677     14.5 An Illustrative Example: Daily Forward Curve 679     14.6 Conclusion 684     References 684     CHAPTER 15 GARCH Models for Commodity Markets 687 Eduardo Rossi and Filippo Spazzini     15.1 Introduction 687     15.2 The GARCH Model: General Definition 690     15.3 The IGARCH(p,q) Model 699     15.4 A Permanent and Transitory Component Model of Volatility 700     15.5 Asymmetric Models 702     15.6 Periodic GARCH 707     15.7 Nesting Models 708     15.8 Long-Memory GARCH Models 713     15.9 Estimation 720     15.10 Inference 722     15.11 Multivariate GARCH 725     15.12 Empirical Applications 727     15.13 Software 740     References 748     CHAPTER 16 Pricing Commodity Swaps with Counterparty Credit Risk: The Case of Credit Value Adjustment 755 Marina Marena, Gianluca Fusai and Chiara Quaglini     16.1 Introduction 755     16.2 Company Energy Policy 756     16.3 A Focus on Commodity Swap Contracts 758     16.4 Modelling the Dynamics of Oil Spot Prices and the Forward Curve 760     16.5 An Empirical Application 764     16.6 Measuring Counterparty Risk 777     16.7 Sensitivity Analysis 788     16.8 Accounting for Derivatives and Credit Value Adjustments 788     16.9 Conclusions 797     References 798     Further Reading 798     CHAPTER 17 Pricing Energy Spread Options 801 Fred Espen Benth and Hanna Zdanowicz     17.1 Spread Options in Energy Markets 801     17.2 Pricing of Spread Options with Zero Strike 805     17.3 Issues of hedging 813     17.4 Pricing of Spread Options with Nonzero Strike 815     Acknowledgement 824     References 825     CHAPTER 18 Asian Options: Payoffs and Pricing Models 827 Gianluca Fusai, Marina Marena and Giovanni Longo     18.1 Payoff Structures 832     18.2 Pricing Asian Options in the Lognormal Setting 833     18.3 A Comparison 856     18.4 The Flexible Square-Root Model 858     18.5 Conclusions 874     References 874     CHAPTER 19 Natural Gas Storage Modelling 877 Alvaro Cartea, James Cheeseman and Sebastian Jaimungal     19.1 Introduction 877     19.2 A Simple Model of Storage, Futures Prices, Spot Prices And Convenience Yield 878     19.3 Valuation of Gas Storage 880     References 899     CHAPTER 20 Commodity-Linked Arbitrage Strategies and Portfolio Management 901 Viviana Fanelli     20.1 Commodity-Linked Arbitrage Strategies 902     20.2 Portfolio Optimization with Commodities 921     Symbols 936     References 936     CHAPTER 21 Econometric Analysis of Energy and Commodity Markets: Multiple Hypothesis Testing Techniques 939 Mark Cummins     21.1 Introduction 939     21.2 Multiple Hypothesis Testing 940     21.3 Energy   Emissions Market Interactions 943     21.4 Emissions Market Interactions 953     21.5 Quantitative Spread Trading in Oil Markets 956     References 964     APPENDIX     A Quick Review of Distributions Relevant in Finance with Matlab(R) Examples 967 Laura Ballotta and Gianluca Fusai     Index