Handbook of Multi-Commodity Markets and

Non-technical, yet sophisticated The Handbook of Multi commodity Markets is a practical manual which covers everything the professional needs on in order to become acquainted with the structure, functioning, rules and practices across a wide spectrum of commodity markets and master a large set of different skills and bodies of knowledge. In particular, the book focuses on the convergence of topics such as arbitrage valuation, econometric modelling, market structure analysis, contract engineering, risk assessment and management. Scenario simulation is dealt with to show how to structure and manage both simple and more sophisticated multi-commodity deals. It shows how, in terms of profit-making or risk management, you can exploit pay-off profiles and trading strategies by betting on the evolution of a diversified set of commodity prices and how you should price energy products and other commodities belonging to markets segmented across specific structural features (e.g., storable vs. non-storable, material vs. immaterial). It discusses which methods and models should be developed or selected in order to make appropriate estimations of the future evolution of prices, specifically in terms of trend and market risk and what measures of risk should be adopted for the purpose of correctly assessing the quality of multi-commodity portfolios.

ANDREA RONCORONI is Professor of Finance at ESSEC Business School (Paris-Singapore), regular Visiting Professor at Bocconi University (Milan), and Director of the ESSEC Energy and Commodity Finance research center. He holds PhD's in Applied Mathematics and in Finance. His research interests primarily cover energy and commodity markets, corporate financial risk analysis and management, quantitative modelling, derivative design and valuation. Andrea put forward the Threshold Model for price simulation in spiky electricity markets, and devised FloRisk Metrics, an effective analytics to monitor and manage corporate financial exposure. He publishes in academic journals, professional reviews, financial book series, and acts as Associate Editor for the Journal of Energy Markets and Co-Editor for Argo Review. Andrea has co-authored the reference volume Implementing Models in Quantitative Finance. As a professional advisor, he consulted for private companies and public institutions, including Dong Energy, Edison, Enel, GDF, Natixis, and Trafigura Electricity Italia (TEI Energy). He is founder and CEO of Energisk, a start-up company developing cutting-edge risk analytics for corporate clients.

GIANLUCA FUSAI is Full Professor in Financial Mathematics at the University of Eastern Piedmont, Italy, and a PT Reader in Mathematical Finance at Cass Business School, City University of London, UK. He holds a PhD in Finance from Warwick Business School, an MSc in Statistics and Operational Research from the University of Essex and a BSc in Economics from Bocconi University. His research interests focus on Energy Markets, Financial Engineering, Numerical Methods for Finance, Quantitative Risk Management. He has published extensively on these topics in top-tier international reviews. Gianluca has also co-authored the best-selling textbook Implementing Models in Quantitative Finance. Gianluca has cooperated to several projects in energy markets including a multi-energy risk assessment tool developed in conjunction with a pool of energy and industrial companies and a forward curve builder for the power and gas markets nowadays used for trading and marking to market. He has also been a consultant for private and public sector on building pricing tools of derivative products. Gianluca has been an expert witness in several derivative disputes.

MARK CUMMINS is Senior Lecturer in Finance at the Dublin City University Business School and holds a PhD in Quantitative Finance. Mark's research interests include a broad range of energy and commodity modelling, derivatives, risk management and trading topics. Mark has published in international journals such as Energy Economics, Applied Energy and the Journal of Energy Markets, as well as mainstream finance journals such as the Journal of Financial Markets, International Review of Financial Analysis and Quantitative Finance. Mark has previous industry experience working as a Quantitative Analyst within the Global Risk function for BP Oil International Ltd. As part of the Risk Quantitative Analysis team, primary responsibilities included derivatives and price curve model validation and development, with a global remit across BP's energy and commodity activities. Mark is engaged in ongoing industry training and consultancy activities, focused on the energy sector primarily.

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

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Handbook of Multi-Commodity Markets and Products Structuring, Trading and Risk Management

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