Commodity market risk: derivatives hedging for the aluminium market.

Abstract

The aim of this text is to treat properly the commodity risk and find out several ways to manage it in the aluminium market. At the beginning, we talk about the risk in a general way and then underline which kind of risk who operates in the commodity markets faces. The second chapter will focus on the derivatives, the theoretical part and how they can be used to offset the market price risk. Several option's strategies are the core of the first part, along with the use of futures and swaps. In the third part, we start to narrow the argument of study running a brief history of the aluminium market. Then, we move analysing the aluminium market also under the economic aspect, pointing out the price and production trends, the main uses in the last century, and mostly in the last 50 years. The last chapter should be the natural conclusion of this work, an application of the derivatives and related strategies in the aluminium market as coverage tools for the market price risk. Several strategies will be treated in careful detail, then compared using real data to establish which would have been the better one given the market situation.