ICM265-Commodity Derivatives

Module Provider: ICMA Centre
Number of credits: 10 [5 ECTS credits]
Terms in which taught: Spring term module
Non-modular pre-requisites:
Modules excluded:
Current from: 2020/1

Module Convenor: Mr Robert Wichmann

Email: r.wichmann@icmacentre.ac.uk

Type of module:


Summary module description:

This module provides an interesting insight into the commodity derivatives markets. It examines the aspects of pricing and trading physical derivatives, with emphasis on the energy and shipping (freight) sectors. The course is designed using real-life trading examples, stimulating students, who wish to follow a sales and trading career, to approach derivatives pricing from first principles.


  • Introduce the unique characteristics of commodities? 

  • Help students understand pricing of commodity forwards and options from first principles 

  • Present the processes of selling, trading, clearing and hedging commodity derivatives positions? 

  • Introduce?a?variety?of?commodity?option trading strategies and their Greek sensitivities 

  • Help students understand the challenges of being a commodity derivatives market maker 

Assessable learning outcomes:

By the end of the module, it is expected that students will be able to:?? 

  • Describe the main features and mechanisms of commodity markets? 

  • Understand the differences between pricing financial and physical derivatives? 

  • Use arbitrage principles as the main intuition to price commodity futures and options 

  • Evaluate the payoff profiles of all main commodity option strategies 

  • Understand the mechanisms of the oil industry and stages of the oil supply chain 
  • Critically evaluate the most up to date energy derivatives reports  

  • Access the latest market information to create hedging strategies using commodity derivatives? 

  • Describe the mechanisms of the freight derivatives market and key characteristics of FFAs (Forward Freight Agreements)? 

Additional outcomes:

The module encourages students to revisit the concepts of macroeconomic theory and understand the importance of the physical markets when pricing commodity derivatives. 

Outline content:

Topic 1: Introduction to Commodity Markets 

Topic 2: Pricing Commodity Forwards 

Topic 3: The Commodity Futures Curve 

Topic 4: Crude Oil. Market Fundamentals. Refining. Crude Products.? 

Topic 5: Natural Gas 

Topic 6: Precious Metals. Base Metals. Agricultural Commodities.? 

Topic 7: The Shipping Market 

Topic 8: Pricing Commodity Options 

Topic 9: Basic Option Strategies? 

Topic 10: The Greeks 

Brief description of teaching and learning methods:

1. Lectures: Five two -hour lectures cover the topics 

2. Seminars: students meet in small groups for a series of seminars. Seminar discussions are based on non-assessed coursework set by the instructors. 

Contact hours:
  Autumn Spring Summer
Lectures 10
Seminars 4
Guided independent study:      
    Wider reading (independent) 10
    Wider reading (directed) 24
    Exam revision/preparation 24
    Advance preparation for classes 4
    Preparation for tutorials 12
    Revision and preparation 12
Total hours by term 0 0
Total hours for module 100

Summative Assessment Methods:
Method Percentage
Written exam 70
Class test administered by School 30

Summative assessment- Examinations:

One 1.5-hour written examination (70% of final mark)

Summative assessment- Coursework and in-class tests:

One 1-hour Multiple-choice Test (30% of final mark)

Formative assessment methods:

Penalties for late submission:

Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx 

Assessment requirements for a pass:
A minimum mark of 50%

Reassessment arrangements:

Re-assessment in August by written examination 

Additional Costs (specified where applicable):

1) Required text books: £60.00 2) Specialist equipment or materials: 3) Specialist clothing, footwear or headgear: 4) Printing and binding: 5) Computers and devices with a particular specification:?£15?6) Travel, accommodation and subsistence: 

Last updated: 4 April 2020


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