Commodity Trading Course Package

5 mins read

By the end of the two day workshop participants will be able to:

a)      Appreciate the linkage between commodity markets (precious metals, crude oil), currencies and rates

b)      Trace the impact of monetary policy announcements on commodity markets

c)       Explain trading strategies using futures, options and exotic products

d)      Understand trading triggers

e)      Derive risk limits for counterparty exposures

For a short review session that walks through the framework used in this workshop please cross selling treasury and commodity products to CIBG and Wealth Management clients

Session Title Topics
One Commodities – Context and Introduction Core concepts
  • Volatilities
  • Trailing volatilities
  • Cycles
  • Announcement, Events & News
  • Interconnections & relationships
  • Trends
Two Products & Trades Futures, Forwards, Options

The ETF Trade and issues

Trading Strategies

Deep Out products for rising volatilities

Exotic Contracts

Structured Exposures

Nicholas Nassim Taleb

Three Trading Tools Analyzing the fundamentals of Oil, USD and Gold

From Fundamentals to Technical Analysis

Signals of strength and weakness

Range bound behavior

Shifting volatilities, trailing vols, vix and momentum

Behavioral Finance and market panics

Trading system or market analyst

Four Treasury Limits & Portfolio Risk Determining Stop loss limits

Optimizing Correlations and Nassim Taleb

Calculating Value at Risk, Pre Settlement Risk (PSR) and Potential Future Exposure (PFE).

Linking PFE and PSE to counterparty limits.

Linking Stop loss and Value at Risk

Course Package

The Commodity Trading Course Package presents a hands-on step-by-step methodology for calculating various risk measures and limits, simulating prices and pay-offs for a number of derivative products, understanding the fundamentals of the Crude Oil and Gold markets and a review of various behavioral finance and technical analysis techniques. It provides the user with a year-long access to the following courses:

  1. Quant Crash Course
  2. Calculating Value at Risk (VaR)
  3. Setting Limits
  4. Derivatives Products
  5. Monte Carlo Simulation
  6. Understanding Commodities Risk
  7. Trading tools and signals – Behavioral Finance and Technical Analysis (coming soon)

This includes course content in on-line format as well as video courses and downloadable pdf and MS excel files. A synopsis of each risk course included in the package is given below:

1.      Quant Crash Course

The Quant Crash Course is a video course that explains concepts such as risk, volatility, trailing volatility, correlation, convexity and linking convexity with optionality and volatility.

It also includes a basic introduction to value at risk, capital and limit management frameworks. It comprises of 4 parts as follows:

Title Duration
a. Part 1: Risk & Context Part 1a – 38:19 min
Part 1b – 19:48 min
Part 1c – 22:58 min
b. Part 2: Value at Risk Part 2a – 36:06 min
Part 2b – 23:39 min
c. Part 3: Capital Part 3 – 41:15 min
d. Part 4: Limits Part 4 – 44:12 min

To test the knowledge gained from this course there is also a quiz (4 parts) provided in MCQ format.

2.   Value at Risk (VaR)

Calculating Value at Risk walks the reader through a step-by-step process for determining the VaR measure that gets used frequently in the risk world. It begins with a review of the various VaR calculation methods such as variance-covariance (VCV), historical simulation and Monte Carlo simulation. It then provides the procedure for calculating VaR under the first two methods for individual assets as well as a simple portfolio of those assets.

An application of using VaR for risk management as well as a tool to forecast and predict the margin shortfall problem is given for the petrochemical industry. This is followed by a number of caveats that highlight the issues of using the VaR measure and what needs to be considered when interpreting and communicating results based on VaR.

The user has access to the course in on-line as well as PDF formats. The latter maybe downloaded and perused at his/her own time and convenience. This is accompanied by fully worked-out examples on calculating VaR and Portfolio VaR in MS EXCEL.

To further demonstrate the calculation and understanding of the VaR measure, a video course on the subject provides the necessary guidelines.

To test the knowledge gained from this course there is also a quiz provided in MCQ format.

3.      Setting Limits

There are a number of challenges when it comes to communicating, enforcing and setting limits in a trade, treasury, portfolio and risk function. The Setting Limits video course proceeds from the concepts covered in the earlier two courses, The Quant Crash Course and Calculating Value at Risk. It introduces the linkage between Stop loss and Value at Risk by defining the median trading loss. The median trading loss is then linked to a VaR confidence level that can be used for communicating results and suggesting limits to Board Risk Committees. The concept of odds is introduced. The interpretation problems that Board members face when seeing extreme probabilities linked to those losses is also highlighted. The course then discusses Pre Settlement Risk (PSR) limits calculations. These are counterparty limits based on a VaR measure that calculates the worst case likely loss on account of default on settlement date by a given counterparty. The approach used highlights the usage of maximum, minimum and median volatilities and suggests that the underlying VaR estimates need to be reviewed more frequently than the once in 2 or 3 year practice often observed in the region.

The course also includes MS EXCEL examples.

To test the knowledge gained from this course there is also a quiz provided in MCQ format.

4.      Derivatives Products

The Derivatives Products Course begins an overview of the vanilla products and their pay-off profiles and then extends to more complex and exotic product types.

The user has access to the courses in on-line as well as PDF formats. The latter maybe downloaded and perused at his/her own time and convenience.

To test the knowledge gained from this course there is also a quiz provided in MCQ format.

5.       Monte Carlo Simulation

The course first introduces the reader to building basic Monte Carlo Simulation models in excel. Ways to reduce the variance and converge the results of option pricing MC models are also discussed. Then a variation to the model is introduction, a trading simulator model, where the normal distribution of returns is replaced by a historical distribution of actual returns for a particular commodity. An overview of the model is presented in the diagrams below as well as the rules for using the trading simulator model.

The user has access to the course in on-line as well as PDF formats. The latter maybe downloaded and perused at his/her own time and convenience.

The explanation of option pricing using Monte Carlo simulation is conducted via a video course.

The course also includes MS EXCEL examples and templates for:

  • Build Monte Carlo simulators in Excel – Commodities
  • Trading Simulator model

To test the knowledge gained from this course there is also a quiz provided in MCQ format.

6.      Understanding Commodities Risk

This includes Jawwad’s book “Understanding Commodities Risk” as well as dedicated on-line articles for understanding gold and crude oil as mentioned below:

  • Understanding Crude Oil. A model for dissecting crude oil.

  • Crude Oil mispricing model (On-line with downloadable excel example)
  • Understanding Gold

  • Relative Gold Price Model (On-line with downloadable excel example)

7.      Trading tools and signals- Behavioral Finance & Technical Analysis

(coming soon)

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Jawwad Farid

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