Commodity — Delta Hedging

Overview

Recent commodity price volatility has resulted in a great deal of financial market interest. This programme presents an alternative approach to traditional expensive option strategies, focusing instead on delta hedging techniques for gold, oil, natural gas and copper. The course targets treasury professionals, private wealth managers and insurance specialists seeking to reduce commodity risk exposure.

Programme 1

• Background to commodities futures: gold ICE futures; WTI and Brent Crude Oil ICE futures; Natural Gas NYMEX futures; Copper COMEX futures
• An introduction to commodity delta hedging — example of a treasurer managing a corporate client's oil exposure; example of a private investment manager managing a client's gold exposure; example of an insurance company underwriting a client's copper exposure
• An introduction to hedging simulations

Programme 2

• Case study — commodity delta hedging simulation using spreadsheet macros: delta hedging simulation; data preparation; simulating 3-month synthetic options using delta hedging macros; combining simulated plans into multi-year performance histories; analysing gold, oil, natural gas and copper delta hedging simulation performance results

Learning Outcomes

• Who needs commodity risk management?
• How can commodity risk management be achieved?
• How can commodities be delta hedged?
• What are the advantages and disadvantages of delta hedging commodities, and how can simulation help?