SWISS DERIVATIVES Editorial Dear Members of SFOA, colleagues and friends,

ISSUE 59 — APRIL 2015

Official publication of the Swiss Futures and Options Association - SFOA

Contents

Focus 2-5

World trade of secondary

commodities 2

Abfallboerse, bringing

competition to the Swiss

value chain 3

Recycling in the UK, a

market-based solution 4

Commodities 6

On the Swiss trading and

shipping industry

Hedging 8-11

Why volatility indexes

are relevant

Letter from America 12-15

The monetary approach

reigns supreme

Advertise in the Swiss

Derivatives Review and

reach 6000 readers

globally!

info@sfoa.org

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The mirror side of commodities

Regulations and unintended consequences

A world market with Chinese standards?

World trade of secondary commodities Secondary commodities are commodities that are the result of recycling. They are opposed to the more

standard “virgin” commodities. What many people still see as waste has become a major part of interna-

tional trade although secondary commodities have not yet found their way on the major exchanges.

Swiss Derivatives Review — Issue 59

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Swiss Derivatives Review: How big is the Swiss

secondary commodity market?

SDR: Are there market prices for secondary com-

modities? Are these regional, national, continental

or world prices?

SDR: In Europe, brokers have specialized on partic-

ular commodities. How is your company, ab-

fallboerse different?

SDR: Why do waste sellers need anonymity yet

want to know everything about buyers?

SDR: You mostly work with companies. Does pri-

vate waste have the same potential?

SDR: How important is quality in the value chain of

the secondary commodities?

SDR: Could Switzerland become an exporting coun-

try for certain types of secondary commodities?

Swiss Derivatives Review — Issue 59

Abfallboerse, bringing compe-tition to the value chain Kurt Muther, Managing Director of abfallboerse, describes the Swiss market and its links to Europe as

well as the particular role played by his company in professionalising the value chain.

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Swiss Derivatives Review: The European Union has

set ambitious recycling goals for 2020, such as

recycling 50% of household waste. In the UK, is

recycling a way to reduce the harm to the environ-

ment or to create value?

SDR: Switzerland banned landfills in 2000. This

speared the emergence of a new recycling ecosys-

tem. Is this something you also see in the UK?

SDR: Is the UK the only country exporting waste to

China?

SDR: Are there links between

the prices of virgin commodi-

ties and secondary commodi-

ties?

SDR: Do these low prices foster productivity?

Recycling in the UK, a market-based solution Paul Sanderson, Editorial Director of the knowledge and network platform Resource Efficient Business ,

provides an insider’s perspective on waste management in the UK.

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SDR: So the prices of secondary commodities are

driven by the prices of virgin commodities?

SDR: Why have they not been developed?

SDR: Do you feel that the revised EU directive

might change this and bring about a European

market?

Swiss Derivatives Review — Issue 59

Material Reprocessed

in the UK

Reprocessed

abroad

Paper 49% 51%

Glass 81% 19%

Aluminum 66% 34%

Plastic 33% 67%

Wood 100% 0%

Total 47% 53%

Export figures for packaging waste in the UK.

Source: DEFRA/CPI.

Paul Sanderson

Paul Sanderson is

Editorial Director of

the knowledge and

network platform

Resource Efficient

Business.

www.rebnews.com

Contact:

paul.sanderson

@rebnews.com

Swiss Derivatives Review

Issue 59 - April 2015

Official Publication of

SFOA - Swiss Futures and Options Association

Phone +41 22 860 21 03, www.sfoa.org

Publisher

Weber-Thedy AG, Zeltweg 25, CH-8032 Zurich

www.weber-thedy.com

On the Swiss trading and shipping industry

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In April, L’Agefi, the only daily financial newspaper in Switzerland, published “Beyond national bounda-

ries”, a special edition supplement on the Swiss trading and shipping industry.

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Why volatility indexes are relevant

Volatility is a function of sentiment

Financial markets are about making decisions in moments of uncertainty. The one certainty one can make

is that no one has a crystal ball, nor can anyone predict with certainty what will occur in the future. Alt-

hough seeking methods to manage portfolio volatility and tail risk may fall out of fashion from time to

time based on market sentiment, it should always be utilized as part of the risk management process. Vol-

atility indexes are instruments that may assist in the risk management process.

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Chart 1: One-month and three-month rolling correlations of VSTOXX® spot

index to EURO STOXX 50® Index

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Chart 2: EURO STOXX 50® Index spot and VSTOXX® spot from 4 Jan 1999 to

17 Oct 2014

Swiss Derivatives Review — Issue 59

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Review of past VSTOXX® Futures research articles

Volatility regimes

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Swiss Derivatives Review — Issue 59

Chart 3: Evolution of the volatility regime shift of VSTOXX® spot and VSTOXX®

Futures

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Frequency of VSTOXX® rallying 5% or more in a

single day since 19998

Mark Shore

Mark Shore has more

than 25 years of experi-

ence in the futures mar-

kets and managed fu-

tures, publishes re-

search, consults on al-

ternative investments

and conducts educa-

tional workshops. His

research is found at

www.shorecapmgmt.com.

Mr. Shore is also an Adjunct Professor at DePaul Uni-

versity. He is board member of the Arditti Center for

Risk Management at DePaul University. He is a con-

tributing writer for Eurex Exchange, the CBOE Futures

Exchange (CFE), Micro-Cap Review, Prime Meridian

and Benzinga.

Swiss Derivatives Review — Issue 59

The monetary approach reigns supreme

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While the mainstream approach fails to offer an explanation for the Panic of 2008-09 and the ensuing

Great Recession, the monetary approach fills this void and offers a coherent theory of national income

determination, asserts Professor Steve Hanke.

Notes: The chart shows the

average annual percent-

age change in quantity of

money, broadly-defined,

and nominal national in-

come in the various coun-

tries, 1980-2013. Broad

money is represented by

M3 in most countries. In a

few cases, M2 is the

broadest measure availa-

ble. Brazil is not included

because of data incon-

sistency problems in

Brazil’s broad money time-

series. The percentage

change in nominal GDP =

0.78+0.91 percentage

change in broad money.

R2 = 0.98, with a standard

error of the equotation of

1.56. The regression coef-

ficient of 0.91 has a t-

statistic of 30.2.

Chart 1: G20 Money and nominal growth rates, 1980-2013

Source: Prof. Tim Congdon, Director of the Institute of International Monetary Research at the University of Buckingham,

U.K. – a lecture delivered at the London School of Economics, 19 January 2015.

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Chart 2: United States money supply (M4) and private credit

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Chart 3: Eurozone money supply (M3) and private credit

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Steve H. Hanke

Steve H. Hanke is Pro-

fessor of Applied Eco-

nomics at the Johns

Hopkins University in

Baltimore, MD. He is

also a Senior Fellow

and Director of the

Troubled Currencies

Project at the Cato In-

stitute in Washington,

D.C.

You can follow him on Twitter: @Steve_Hanke

Chart 4: China Money supply (M2) and private credit

Official publication of the Swiss Futures and Options Association - SFOA