financial risk assessment, part i.2 (derivatives) · 2015. 12. 28. · imarex routes sector route...
TRANSCRIPT
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NATIONAL TECHNICAL UNIVERSITY OF ATHENS
School of of Naval Architecture and Marine Engineering
Financial Risk Assessment, Part I.2
(Derivatives)
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Scope
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 2
• Summary of stock exchange derivatives
• In particular some basic information on shipping derivatives
”It is far better to predict without certainty, than never to have predicted at all.”
Ηenri Poincare
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Features of contemporary
economic Environment
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 3
•Volatile interest rates
•Changes in currency exchange rates
•Fluctuations in commodity prices
•Intense competition
•Competition among financial
institutions
•Globalisation of trade
Financial Risk
Management Techniques
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"Financial securities whose price is derived from the actual
value of the assets that underlie, whether they are
financial or physical"
Derivatives
Εργαστήριο Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 4
Definition:
• An economic agreement between two parties
(contractors), exchange of assets in the future
• They are an asset in themselves
• Aimed at effective management of asset accounting
• Contribute positively to the stability and development of
the market
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Spot: The physical (real) market in which transactions are settled
immediately
Assets: Any asset (physical or financial) which is traded in the Spot
market and is substituted by derivatives in the derivatives market
Short position
Short or negative position taken by the trader who agrees to sell a
commodity (physical or financial)
Positive position (Long position)
Long or positively received by the market maker who agrees to buy a
commodity (physical or financial)
Nomenclature
Εργαστήριο Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 5
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Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 6
• Seeds and Fruits
• Shares
• Livestock and Meat
• Interest Rates
• Wood, yarn
• food contracts
• Foreign exchange
• Precious and Industrial Metals
• Indices
• Energy Products
EXAMPLES OF UNDERLYING ASSETS
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Uses and users of derivatives
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 7
Uses
• RiskReduction (Hedging)
• Speculation
• Arbitrage
• Cost reduction
• Input / Output from the market
• performance Enhancement
• Price discovery
Users
•Banks
•Investment companies
•Insurance companies
•Investors
•Various companies
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Main types of derivatives
Εργαστήριο Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 8
Forward Agreements Future Contracts
• Options
• Swaps
• Others
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(Hedging)
Uses
Εργαστήριο Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 9
Asset value protection
Open counter derivative market position than in physical market
•Main principle •Main principle
Buy low, sell how
Directional bets for value fluctuations
• Scope • Scope
• Users • Users
Participants of Physical Market
All investors
Speculation
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Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 10
Derivative Instruments Term Base
Contracts between two parties that require a specific act at a later
date
Trading mode : Out or In Regulated Exchanges
• Forwards • Futures
Counterparties:
Buying and selling property in
• agreed future time
• default value
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Futures vs. Forwards
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 11
• They are subject to trading on trading hours of stock exchanges
• Standard (contract size, duration, delivery)
• Safety Margin
• Daily settlement: Gains / Losses credited daily
Futures Forwards
• OTC Products
• Traded as with all conditions
• Identities of counterparties are important
• Final payment on the due date
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Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 12
Example reflecting differences, if instead of
forwards, both companies sign Futures
• Standard - Non-optimal risk coverage
• Standard delivery dates
• daily Settlement
• Can terminate the contract whenever they wish before the end
• guaranteed
• Warranty for Fulfillment of Contracts
• Settlement
• Completion of deliveries
Marking to Market
Margin call management
clearing house - role
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Future Contracts
Εργαστήριο Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 13
Marking to Market
Gains or losses are settled on a
daily basis
Clearing
At the closing date of
Contract (Final Settlement)
or earlier
• Derivatives traded on the stock exchanges
• The transactions are performed by the Clearing House
(Paper-Brokers)
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Options
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 14
• Call option
• Put option
It is a contract that gives the holder the right but not the obligation to
buy or sell an asset at a predetermined price at a certain time
period
The other party has the obligation to honor the contract
•European Type
•American Type
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Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 15
Swap
• OTC contract
• They can be considered a series of forward contracts
• Interest Rate Swap
• FOREX Swap
Is an agreement between two parties to exchange payment obligations
eg interest for a specified period and a specific notional capital
Other Derivatives
•Floor – Cap
•Options
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Shipping derivatives
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 16
• Volatile freight rate prices (70% change in 20 days)
• large capital at stake
• Seasonality
• shipping cycle effect
• Extrinsic factors (military events, new deposits of oil, etc.)
• Changes in interest rates and exchange rates
• Changes in ships asset values
Characteristics of the Shipping Market -
Financial risk Sources
A favorable environment
for the development of
derivatives
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Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 17
The shipping derivatives are a financial product that is traded based
on a future date index value linked on the bulk and tanker freight rates.
Indicators: Baltic Exchange & Platts
They do not include physical delivery
They do not refer to real-life ships
•1985 BIFFEX
•1992 FFAs
Main Users of
Shipping
Derivatives
•Shipping companies
in general
•Companies trading
oil & seeds
•Banks and other
financial institutions
Definition
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Types of Shipping Derivatives
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 18
•Forward Freight Agreements (FFAs)
•Contracts determine the price of the fare for a specific amount of
load (or vessel type) for a route (or a combination of routes) of the
main routes of the tanker & bulk carriers
•Freight Futures
•In organized exchanges: NYMEX, IMAREX
•E.g. IMAREX
•Directly to the online market through brokers in Oslo and
Singapore
•Through independent brokers shipping derivatives:
•Clarkson's, Simpson Spence & Young, Freight Investor Services
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Types of Shipping Derivatives (continued)
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 19
•Hybrid FFAs
•OTC agreements
•Cleared by LCH.Clearnet
•Freight Options
•Available in individual routes of Stock Baltic Exchange in baskets and
the FFA linked to them
•Monthly, quarterly, annual
•They use indicators of the Baltic Exchange
•Option to buy or sell
•Example: Shipowner (sales contract) agrees to sell his ship at a
certain date in the future at the predetermined price
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The contract shipping derivatives
should consist of:
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 20
•The route
•The price of futures / forwards
•In month contract
•The duration of the contract
•The quantity
•Settlement terms
•Clearance (if applicable)
•A contract of FFABA (Forward Freight Agreement Brokers
Association)
•or a custom ISDA (International Swap Derivatives Association)
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The main trading exchanges for
shipping derivatives are:
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 21
• The IMAREX from spring 2000 is engaged in the trading and clearing of futures Futures on the Baltic Exchange indices.
• NYMEX since the May 2005 negotiates and clears it and Futures contracts.
• The LCH since September 2005 clears FFA which negotiated OTC by brokers and so creates hybrid FFA.
IMAREX
•Norwegian company
•Open since May 2000
•Collaborates with the NOS (Norwegian Futures & Options Clearinghouse)
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Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 22
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Routes of IMAREX
Περιοχή Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 23
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Forward Freight Agreements
Εργαστήριο Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 24
•Traded by ΙΜΑREX
•Cleared by NOS and others
(ΝΟS, LCH, ΝΥΜΕΧ)
BCI BDTI
BDI BTI
BPI BHI BSI
P2A Panamax T/C Skaw Gibraltar – Far East 74000
IMAREX
Routes Sector Route Description Cargo Size
C4 Capesize Richards Bay – Rotterdam 150000
C7 Capesize Bolivar – Rotterdam 150000
P3A Panamax T/C S.Korea – Japan Pacific 74000
Panel B: Listed Basket of T/C Dry-Bulk Futures
CS4TC Capesize T/C Average n/a
PM4TC Panamax T/C Average n/a
HM6TC Handymax T/C Average n/a
BCTI BITR
Baltic
Indices
Units: $ / day
Duration of contracts:
Annual / Quarterly / Monthly
Routes Dry Cargo
Units: World Scale (WS)
Duration of contracts:
Annual / Quarterly / Monthly
Routes Liquid Cargo
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Performed by the IMAREX platform of NOS
Clearing
Εργαστήριο Θαλασσιών Μεταφορών, Σχολή Ναυπηγών Μηχανολόγων Μηχανικών ΕΜΠ 25
NOS enters into the transaction as the CCP offering:
• Reliability
• Balance
• Discreteness
ΑΓΟΡΑΣΤΗΣ ΠΩΛΗΤΗΣΑΝΤΙΣΥΜΒΑΛΛΟΜΕΝΟΥ
ΡΙΣΚΟ
N O S
Value of Freight Future contract :
Π = R - I
R: Price Spot ($/day)
I : Price Future ($/day)
Π > 0 : Profit from buying futures
Π < 0 : Profit from selling futuresΑ = |Π|
(Norwegian Futures and Options Clearing House)
R refers to settlement
day