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Commodity Risk Management
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This book aims to raise an alarm bell about the current state of commodity risk management
and to suggest some helpful improvements. In particular, the rise of commodity-related exchange
traded funds (ETFs) and other commodity-based securities traded on stock markets has extended
the scope of commodity trading to include a large class of traders not directly involved in the
cash commodity market. These largely long side traders operate under the motivation that purely
speculative commodity transactions constitute “investments” within an efficiently diversified
portfolio of assets. After an initial period of commodity price increases driven by the increase
in long side participation of these “new” traders, the underlying speculative motivation for the
commodity transaction surfaces. The inevitable collapse in prices induces dis-hoarding of the
commodity “investment” positions, resulting in sustained periods of distressed commodity prices.
Real losses are imposed on actual commodity producers created by the excess stocks and flows
of the commodity that were encouraged by the increase in prices. Historically, the commodity
markets have suffered severe systemic disruptions in the price discovery process when the hoarding
and dis-hoarding activities of traders not involved in the cash market become too significant a
proportion of commodity stocks and flows
Geoff rey Poitras - Personal Name
NONE
Commodity Risk Management
Management
English
2013
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