Reading 30
Introduction to Commodities and Commodity Derivatives
2 modules 24 min
0/2
Exam Focus
This topic review will help you understand different commodity sectors and key factors influencing prices in those sectors. Pay special attention to what backwardation and contango mean in terms of spot and futures prices. You should understand the different components of returns to commodity futures and what determines whether roll return is positive or negative.
Finally, familiarize yourself with the Insurance Theory, the Hedging Pressure Hypothesis, and the Theory of Storage and what they say about futures prices.
Modules
- Module 30.1Introduction and Theories of ReturnCompare characteristics of commodity sectors. · Compare the life cycle of commodity sectors from production through trading or consumption. · Contrast the valuation of commodities with the valuation of equities and bonds. · Describe types of participants in commodity futures markets. · Analyze the relationship between spot prices and futures prices in markets in contango and markets in backwardation. · Compare theories of commodity futures returns.16 min · 6 LOS
- Module 30.2Analyzing Returns and Index ConstructionDescribe, calculate, and interpret the components of total return for a fully collateralized commodity futures contract. · Contrast roll return in markets in contango and markets in backwardation. · Describe how commodity swaps are used to obtain or modify exposure to commodities. · Describe how the construction of commodity indexes affects index returns.8 min · 4 LOS