Master Thesis

EMISSION TRADING AND RISK HEDGING
January 7, 2012
JOINT ACADEMIC PROGRAM
CHRIST UNIVERSITY, BANGALORE AND FACHHOCHSCHULE WUERZBURG SCHWEINFURT, GERMANY
MBA MASTER THESIS

By
SHEJO JOSEPH
MATRICULATION NO. -7310240
Christ University Institute of Management Sciences Bangalore, India
University of Applied
Wrzburg-Schweinfurt,Germany
Shejo Joseph | 7310240
Hochschule fr angewandte Wissenschaften Fachhochschule Wrzburg-Schweinfurt (FHWS)
University of Applied Sciences Rntgenring 8, A-Gebude, Zimmer 121 97070 Wrzburg, GERMANY

By:
Shejo Joseph MASTER THESIS

Submitted in partial fulfilment for the degree of MASTERS IN BUSINESS ADMINISTRATION (MBA) At the University of Applied Sciences Wrzburg-Schweinfurt Faculty of Business Administration
MENTOR: Prof. Dr. MBA Notger Carl
JOINT ACADEMIC PROGRAM CHRIST UNIVERISTY, BANGALORE & FHWS Shejo Joseph Bangalore
Page i
26.06.1987 JANUARY 2012
CERTIFICATE OF THE MENTOR
This is to certify that the thesis on Emissions Trading and Risk Hedging is done by Shejo Joseph in partial fulfilment of the requirement of Master of Business Administration degree from "FHWS University of Applied Sciences, Wrzburg, Germany. The thesis has been carried out under my guidance and is a record of the bonafide work carried out successfully.
Signature:
Date:
Mentors full name Prof. Dr. MBA Notger Carl
Page ii
Page iii
STATUTORY DECLARATION:
I, Shejo Joseph hereby declare that the thesis entitled Emission Trading and Risk Hedging has been written by me and I have not consulted other sources or other aids other than those listed in the references.
Place: Bangalore
Date:
Signature:
Students full name Shejo Joseph
Page iv
ACKNOWLEDGEMENT:
I would sincerely like to express my profound gratitude to all those who have helped me for their support and guidance for the completion of this thesis. Firstly I would like to express my gratitude to my mentor Prof. Dr. MBA Notger Carl who has guided me throughout the preparation of my thesis. I would also like to thank those who provided me with information that helped me in this thesis, without which it would have been very difficult to complete. I would also like to express my gratitude towards Prof. Dr. Uwe Sponholz for his able leadership in this joint program and the guidance he provided us with.
I must also thank, Ms. Susanne Hfner & Mr. Stefan Nun coordinator FHWS, for their timely communication and constant support. To cap it all I am obliged to my family and friends, especially Ms. Mary Safreena S. without whose love and support it would have been difficult to successfully complete this task, and all those who have directly or indirectly helped me for the completion of the thesis.
Shejo Joseph
Page v
LIST OF ABBREVIATIONS:
AAU Assigned Amount Units CDM Clean Development Mechanism CER Certified Emission Reduction CFI Carbon Financial Instruments COP Conference Of Parties DC Designated Consumers ECX European Climate Exchange ERU Emission Reduction Unit ESCerts Energy Saving Certificates EU ETS European Union Emissions Trading Scheme EUA European Union Allowances GDP Gross Domestic Product GHG Green House Gases GWP Global Warming Potential JI Joint Implementation MCX- Multi Commodity Exchange PAT Perform Achieve and Trade RBI Reserve Bank of India UNFCCC United Nations Convention on Climate Change
Page vi
Page vii
Abstract
The Emission Allowances have been traded on several markets with increasing popularity of the same. The market mechanisms that have been derived from Kyoto protocol have been illustrated in the thesis. The aim of the thesis is to implement cost of carry model for finding of arbitrage opportunities and risk management of the basis risk for companies participating in the emissions market. There is a statistical and econometrical analysis performed for assessing the innate characteristics of the spot and futures market. The basis risk is calculated and thereafter the implication of strengthening and weakening of basis risk on the various hedging view is analyzed. Finally the hedge ratio is calculated and the hedge efficiency is given. The thesis is based on the spot and futures data available for hedging of CFI (Carbon futures Instruments) in MCX (Multi Commodity Exchange) India.
Page viii
Contents
CERTIFICATE OF THE MENTOR ............................................................................................................ ii STATUTORY DECLARATION: .............................................................................................................. iv ACKNOWLEDGEMENT:......................................................................................................................... v LIST OF ABBREVIATIONS:.................................................................................................................... vi Abstract ............................................................................................................................................... viii INDEX OF TABLES AND FIGURES ........................................................................................................ xi Part 1 - Inception..................................................................................................................................... 1 1.1 Introduction................................................................................................................................... 1 1.2 The Kyoto Protocol ....................................................................................................................... 1 1.3 Perform Achieve and Trade: Indian market based mechanism ................................................... 3 Part 2 - The Concepts ............................................................................................................................. 5 2.1 The Mechanisms ........................................................................................................................... 5 2.1.1 Emission trading .................................................................................................................... 5 2.1.2 Clean Development Mechanism (CDM) ................................................................................ 7 2.1.3 Joint Implementation............................................................................................................. 8 2.2 European Emission Trading Scheme price determinants ........................................................... 9 Part 3 - Problem Identification, Formulation and Methodology ......................................................... 10 3.1 Background and Motivation ....................................................................................................... 10 3.2 Objective of the thesis ................................................................................................................ 11 3.3 Problem Statement .................................................................................................................... 11 3.4 The Sample ................................................................................................................................. 12 3.5 Structure of thesis ....................................................................................................................... 13 3.7 Limitations of the Thesis............................................................................................................. 14 Part 4 - Analysing the Spot and the Futures Market ........................................................................... 15 4.1 Introduction to Analysis .............................................................................................................. 15 4.2 The Dataset ................................................................................................................................ 16
Page ix
4.3 Descriptive Statistics .................................................................................................................. 16 4.3.1 The concept.......................................................................................................................... 16 4.3.2 The Data............................................................................................................................... 17 4.3.3 The Analysis ......................................................................................................................... 17 4.4 Histogram .................................................................................................................................... 18 4.4.1 Skewness ............................................................................................................................. 19 4.4.2 Kurtosis ................................................................................................................................ 21 4.5 Statistical Tests for Deviation from Normality .......................................................................... 22 4.6 Autocorrelation .......................................................................................................................... 26 4.7 Intra-phases Futures and the Role of Convenience Yield .......................................................... 27 4.8 Why CDM Failed? ....................................................................................................................... 28 4.8.1 The Interview: dated 21/12/2011 ......................................................................................... 28 4.9 Part 4 conclusion ........................................................................................................................ 29 Part 5: The Hedging Concept ............................................................................................................... 30 5.1 Introduction to Hedging Concept ............................................................................................... 30 5.2 Calculation of Arbitrage Opportunity ........................................................................................ 30 5.3 Basis Risk and Impact of Strengthening and Weakening of Basis ............................................. 33 5.4 Hedge Ratio Calculation ............................................................................................................. 37 5.4.3 The Process .......................................................................................................................... 38 Part 6 Conclusion ............................................................................................................................... 42 Future Research Proposal .................................................................................................................... 43 Bibliography ......................................................................................................................................... 44 Appendix 1: List Annex I parties to the UNFCCC ................................................................................. 47 Appendix 2: The COP/MOP negotiations ............................................................................................ 49 Appendix 3: Cost of Carry Implementation (Data Source for spot and future from MCX) ................. 52
Page x
INDEX OF TABLES AND FIGURES:

Table 1: Carbon Market's Evolution, 2004-10 ........................................................................................ 3 Table 2: Descriptive Statistics of Spot and Log Returns...................................................................... 17 Table 3: SPSS Output Tests for Normality........................................................................................... 23 Table 4: Interpretation of the Q-Q plot................................................................................................ 25 Table 5: SPSS Output for Autocorrelation ........................................................................................... 27 Table 6: Arbitrage Opportunity Decisions ........................................................................................... 31 Table 7: Intention to deliver.................................................................................................................. 33 Table 8: No intention to deliver (He has to square up before expiry).................................................. 33 Table 9: Basis Weakening will help the long hedger ........................................................................... 34 Table 10: No intention to take delivery (He has to square up before expiry) ...................................... 35 Table 11: Weakening of basis will hurt the short hedger ..................................................................... 36 Table 12: Effect of Strengthening and Weakening of Basis ................................................................ 37 Table 13: Changes in Futures ................................................................................................................ 38 Table 14: Changes in Spot .................................................................................................................... 39 Table 15: Correlation Output using Excel 2007 .................................................................................... 40
Figure 1: The ways to achieving GHG reduction .................................................................................... 5 Figure 2: Concept of Trading .................................................................................................................. 6 Figure 3: Structure of the Thesis .......................................................................................................... 13 Figure 4: Spot Market MCX India ......................................................................................................... 15 Figure 5: Log Normal Returns .............................................................................................................. 16 Figure 6: Log Normal Returns Frequency Distribution ........................................................................ 18 Figure 7: SPSS Output for Frequency Distribution .............................................................................. 19 Figure 8: Skewness ............................................................................................................................... 19 Figure 9: SPSS Box Plot log Returns .................................................................................................... 20 Figure 10: Kurtosis Concept ................................................................................................................. 22 Figure 11: SPSS Output for Normal Q-Q Plot of Log Normal ............................................................. 23 Figure 12: SPSS Output Detrended Normal Q-Q Plot of Log Normal ................................................ 26 Figure 13: Spot and Future movement MCX ........................................................................................ 28
Page xi
January 7, 2012
Part 1 - Inception 1.1 Introduction The uncertainty of life is the greatest truth that perplexes us all. There are umpteen ways the world can end and certainly umpteen more theories on how the author of destiny can end it all.
One of these theories threatening human life is Global Warming. It is a main cause for climate change, a price which till last decade we were ready to pay for rapid industrial growth. The rapid growth of industries increases energy consumption which in turn increases the CO2 and other Green House Gases (GHG) emissions. The adverse effects of Global Warming includes increase in sea levels due to melting of ice at the poles, changes in wind and precipitation, and changes in crop yield to name a few. As a result of this the earths temperature is expected to rise by 1.40 to 5.80 Celsius by 2100, in context with the rise in temperature of the earth by 0.70 since 1900.1
1.2 The Kyoto Protocol The year 2010 was ranked the warmest year on record.2 With concentration of CO2 emissions at 389.68ppm3, the year registered continuous inexorable rise in emissions. The rise in temperature and GHG emissions has been a cause of concern for the past 2 decades. This concern brought the globe together on one stage at the third United Nations Framework Convention on Climate Change (UNFCCC) in Kyoto, Japan, on 11 Dec 1997. The convention aimed at reducing the GHG emissions to at least 5.2% below the 1990 levels for the period from 2008 till 2012 by 40 industrialized nations and economies in transition (Annex 1), while developing countries could take no regret actions and voluntarily help in
Global Efforts to Mitigate Climate Change and Kyoto Mechanisms.pdf, n.d., http://www.climatechange.lk/DNA/data/Programme%20Schedule/Academic%20StaffOUSL/Global%20efforts%20to%20Mitigate%20Climate%20Change%20and%20Kyoto%20Mechanisms.pdf. 2 2010 Record Temperature, international, World Meterological Organization, n.d., http://www.wmo.int/pages/mediacentre/press_releases/pr_906_en.html. 3 Trends in Atmospheric Carbon Dioxide, Government, National Oceanic & Atmospheric Administeration, n.d., http://www.esrl.noaa.gov/gmd/ccgg/trends/.
Page 1
January 7, 2012
reducing GHG emissions and removal actions via CDM.4 This period is also known as the first commitment period. The Kyoto protocol was adopted on 16 Feb 2005 without US ratifying it.5
Only the countries that ratified to the protocol, and were also Annex 1 nation made the protocol legally binding for them. The legal texting was passed on 2001, conference in Marrakesh, Morocco.6
According to the UNFCCC both natural and caused by man (anthropogenic), GHGs trap the heat in the earths atmosphere. Primary GHGs comprise of water vapour, carbon dioxide, nitrous oxide, methane and ozone. Anthropogenic GHGs caused by combustion or deforestation are the reason for add to this and thereby contributing to the climate change. The gases that comprise of the GHGs emissions are:7 1. Carbon Di Oxide (CO2), generated by burning of fossil fuel and by respiration. 2. Methane (CH4) may be released when mining for coal, or searching for natural gas and oil. It can also be generated by landfills and livestock. 3. Nitrous Oxide (N2O), generated by burning fossil fuels and by fertilizers. 4. Hydro fluorocarbons (HFCs), by refrigeration and air-conditioning units. 5. Per fluorocarbons (PFCs), by refrigeration and air-conditioning units. 6. Sulphur hexafluoride (SF6), by manufacturing process.
The convention recognized that the developed countries are principally the cause for the current high emission levels of GHGs. The high levels are primarily a result of more than 150 years of their industrial activity. The protocol so places binding targets on Annex 1 nations (See Appendix 1), under the principle of common but differentiated responsibilities. The major developments of the conference of parties (COP) in each of their meetings have been illustrated in Appendix 2.
Mickey Z. and Planet Green, TLC Family Green Glossary: Kyoto Protocol; Cap-and-Trade, TLC, n.d., http://tlc.howstuffworks.com/family/green-glossary-kyoto-protocol.htm. 5 Kyoto Protocol, n.d., http://unfccc.int/kyoto_protocol/items/2830.php. 6 Anup Shah, COP7Marrakesh Climate Conference Printer Friendly Version Global Issues, November 11, 2001, http://www.globalissues.org/print/article/297. 7 Neil C. Schofield, Commodity Derivatives: Markets and Applications (John Wiley and Sons, 2011).
Page 2
January 7, 2012
The treaty states that the countries must meet the targets set via various national measures. The protocol suggests additional ways for meeting these targets by 3-market based mechanisms. These are: 1. Emissions Trading known as the carbon market 2. Clean Development Mechanism (CDM). 3. Joint Implementation (JI).
The countries can also adopt reforestation or removing atmospheric carbon via use of carbon sinks. From the time the carbon market has been established its total value has grown to $142 billion.8
Table 1: Carbon Market's Evolution, 2004-10
Carbon Market's evolution, 2004-10, Data ($ billions)

EU ETS Other Primary Allowances Allowances CDM Secondary Other CDM Offsets
Year
Total
2005 2006 2007 2008 2009 2010
7.9 24.4 49.1 100.5 118.5 119.8
0.1 0.3 0.3 1 4.3 1.1
2.6 5.8 7.4 6.5 2.7 1.5
0.2 0.4 5.5 26.3 17.5 18.3
0.3 0.3 0.8 0.8 0.7 1.2
11 31.2 63 135.1 143.7 141.9
Sources: World Bank, Thomson Reuters Point Carbon, Bloomberg New Energy Finance and Ecosystem Marketplace Note: Numbers may not add up due to rounding. The market mechanisms are dealt in more in detail in the coming sections. The Cap-andTrade being explained in detail, as they are primarily the base for emission trading for the entire thesis. 1.3 Perform Achieve and Trade: Indian market based mechanism Indias Perform achieve and trade (PAT), cap and trade scheme, is set to use energy saving certifications to cut emissions. The proposal, which could be implemented in 2013, will
8
Environment department Environment department, State and Trends of the Carbon Market 2010 (Washington DC: World Bank, June 2011).
Page 3
January 7, 2012
place targets for reduction in energy consumption.
This is to be imposed on industries and other establishments which consume more energy than the limit in 9 industrial sectors. These sectors named as Designated Consumers (DCs)9 and account for 45% of energy usage commercially and contribute 25% to the GDP, include the following: 1. Thermal Power plants 2. Fertilizers 3. Cement 4. Pulp and paper 5. Textiles 6. Chlor-Alkali 7. Iron and steel 8. Aluminium 9. Railways
The industries those manage to improve their caps, will be allowed to sell ESCerts (Energy Saving Certificates), similar to carbon credits. The scheme potentially can reduce about 5 per cent of the national energy consumption by 2015. This is equivalent to 10 million tonnes of oil savings, over a period of 3 years.10
As India enters the National Action Plan on Climate Change with its PAT, it can learn from the Kyoto.
A Discussion Paper on India-s Perform Achieve and Trade (PAT) Scheme.pdf, n.d., http://www.emergentventures.com/docs/A%20Discussion%20Paper%20on%20Indias%20Perform%20%20Achieve%20and%20Trade%20(PAT)%20Scheme.pdf. 10 IN-2: Perform, Achieve, Trade (PAT) Scheme, n.d., http://iepd.iipnetwork.org/policy/perform-achievetrade-pat-scheme.
Page 4
January 7, 2012
Part 2 - The Concepts
2.1 The Mechanisms The Kyoto protocol established 3 interconnected mechanisms as shown in Inception chapter, and will be described in detail in this chapter as it is relevant for the analysis of the thesis.
Figure 1: The ways to achieving GHG reduction
2.1.1 Emission trading European Union Emissions Trading Scheme (EU-ETS) is the perfect example of Emission Trading which was set up initially to operate from 2005 to 2007, as its first phase. EU-ETS second phase coincides with the first commitment period of 2008-2012.
The Carbon market for trade of emissions involves buying or selling of the right to emit a predetermined amount of a specified pollutant. As carbon dioxide is the most widely produced GHG the market is referred as carbon market.11 It involves 2 credit types:
11
Schofield, Commodity Derivatives.
Page 5
January 7, 2012
offsets and allowance. The allowance or acquiring of the rights under Kyoto terms is called as Assigned Amount Units (AAU) where 1 AAU is equal to emission of 1 ton of CO2 emission. So if an industry emitted 100 tonnes of CO2 in 1990 then that industry is required to reduce the emission to a minimum of 94.8 tonnes as per Kyotos commitment. So if the company that chooses to emit more than this target amount, it has to either buy allowances from the market such as ECX, or invest in technology to achieve the emission target. European Union Allowances (EUA), in the European Union are either allocated or auctioned by their regulators. Thus, Company 1, to achieve its target of the permitted carbon emission, which overshoots by 1000 tons, so buys from a Company 2 which manages to reduce its target emissions by 1000 tons (See figure 1).
Figure 2: Concept of Trading
But why a company would want to buy allowances from markets? There is a penalty associated per unit of pollutant. For example, in the original design of the EU-ETS, this cost was 40 per metric ton of CO2. This is charged when the firm is does not take measures to restrict to the cap set.
Page 6
January 7, 2012
EU has been the largest in adoption of such trades with its EU-ETS, trading US $ 119.8 billion in 2010.12
There are 2 main markets which together make the area for carbon offsets: the voluntary market and the compliance market. A carbon offset is reduction in or sequestration of emissions of GHG, made in order to compensate for or to offset emission made elsewhere.13 The offsets are generally measured in tCO2e (tonnes of carbon dioxide equivalent), to compare impact of GHGs, based on Global warming potential (GWP). The GWP of methane CH4 is 21 times that of CO2.14 These offsets are derived from project such as tree-planting or renewable energy, or by involving in removing the right for an entity elsewhere to pollute, for example, by removing pollution allowances from the EU-ETS.
Compliance based offsets are generally more strict as governing bodies and regulators enforce the entities emitting more to conform to the standards set.
2.1.2 Clean Development Mechanism (CDM) There are 2 fundamental objectives that are targeted by CDM15: 1. Reducing the emissions by developed countries to fulfil their commitments. 2. Achieve sustainable development in developing countries. Sustainable development is defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs -Brundtland Report16
CDM projects help the industrialised countries for meeting their emission reduction targets,
12 13
Environment department Environment department, State and Trends of the Carbon Market 2010. The State of Voluntary Carbon Offsetting in the FTSE 100.pdf, n.d., http://www.carbonretirement.com/sites/default/files/The%20State%20of%20Voluntary%20Carbon%20Offset ting%20in%20the%20FTSE%20100.pdf. 14 UNFCCC, Global Warming Potentials, international, n.d., http://unfccc.int/ghg_data/items/3825.php. 15 CDM: CDM Benefits, n.d., http://cdm.unfccc.int/about/dev_ben/index.html. 16 (World Commission on Environment and Development, 1987, p. 8)
Page 7
January 7, 2012
by providing saleable CER (certified emission reduction) credits. So basically CDM represents investment in a project by an annex B nation that leads to lessening of emissions.
The CDM projects are supervised and certified by the UN, who in turn issues credits annually equivalent to the amount by which emissions reduced using these projects.
These credits a.k.a. CERs, can be used by the eligible annex B entities to meet their emissions targets and could also be traded in a secondary market. Typically the projects would include:17 1. Energy efficiency schemes 2. Methane capture 3. Fuel switching (e.g. from non renewable to renewable) 4. Capturing and destroying of harmful industrial gases
As of recent times the projects are being implemented mostly in China, India, Brazil, South Korea, with an increasing interest in the African countries. There are 2 durations for which a project can be registered, 10 year (non renewable) and 7 years (with renewable possibilities) conditions. In case of project failure causes the installation to go out of business the credits are not issued.
In 2012 UNFCC estimates the issued CERs to be nearly 800,000,000 by the end of the first commitment period of the Kyoto.18
2.1.3 Joint Implementation Emission Reduction scheme wherein an Annex B, nation invests in projects of another Annex B nation, because the cost of reducing emissions is lower in the target. This provides the nation the required emission allowances.
17 18
Schofield, Commodity Derivatives. Ibid.
Page 8
January 7, 2012
2.2 European Emission Trading Scheme price determinants The determinant of price in Emission markets are: 1. Economic growth: As economy betters it is likely that emission of GHGs increases 2. Supply of allowances: As supply of allowances increases the price of emission allowance falls 3. Demand for allowances: it is likely that many of the countries will miss their Kyoto targets so the demand for allowance is to increase thereby increasing the price of emission allowances. 4. Type and vintage of the emissions to be traded: the allowances cannot be carried over therefore the contracts for delivery phase 2 will be traded at a different price. 5. Weather patterns and fuel prices: As power generation is the biggest source of emissions, for example the winter the power generation is more in US so the emissions increase in this duration. 6. Penalties for non compliance: As the penalties increase so does the emission decrease. There is an inversely proportional relationship between the two. 7. Alternate sources of electricity production: the cost of emissions will be affected by the increase in use of alternate energy. 8. Regulations: the factors that may affect the price are a. National allocation plans b. Whether project-based credits can be included and to what extent c. If allowances or credits can be passed on between compliance periods d. Strength of the compliance regime. 9. Linkages with other energy markets.
Page 9
January 7, 2012
Part 3 - Problem Identification, Formulation and Methodology
The main objective of this part is to define the problem statement for the entire thesis. The background and the motivation that lead to the problem statement will be stated. Then the main problem will be stated and this problem then will be divided into sub-problems. The problem definition and limitations will also be put forth in this part of the thesis.
3.1 Background and Motivation The background and motivation for the thesis comes from the fact that emission trading is a young and growing market as well as presents a good opportunity to learn from Europe. The dynamic nature of the market lets it be a lucrative ground for all the three players in the commodities market, the speculator, the hedger, and the arbitrageurs. Basically as there is a cap and trade mechanism in this market, the companies have an impact on the way they conduct their business. Since there is another business opportunity for those companies which have excess of emission allowances (i.e. they emit less) to sell in this field, and a force of buying the emission for the companies which are at a shortage of emission allowances. It is also a hot talk of the media since its inception. Emission trading is not just a thought or a concern about environment but it is also a positive action towards a better climate. This can be shown by the reduction in emissions and meeting of targets by EU. This thesis focuses on the financial impact of the emission trading and the business impact of the new trading system. It analyses a few challenges posed to the companies, such as employing of new monitoring and control systems, future trend projections of the market and implementation of risk management practices. The thesis addresses the issues of hedging related to financial instruments. The study is focused on the hedging aspects and the cost of carry implementation. It helps in hedging with respect to basis risk. The emission markets have not been explored much with respect to investment theory point.
Page 10
January 7, 2012
The thesis is not a comprehensive study but just a view towards hedging aspect of the market using futures. Further studies in this aspect can be done by future students and researchers. 3.2 Objective of the thesis The purpose of the thesis is to study about the Emission Allowances in general and Carbon Financial Instruments (CFI) product of MCX India in specific. The objective is to study the cost of carry implementation in the product and ways to hedge the basis risk present in the market. The process firstly does a fundamental analysis of the market; thereby calculation of
hedge ratio is presented.
3.3 Problem Statement The main problem statement of the thesis is Implement the cost of carry model for Carbon Financial Instruments and thereby finding arbitrage opportunity in the market and hedge for the basis risk. Study shows the characteristics and the assumptions for implementation of the model. The research questions looks for the answer to identification of valid stochastic model which represents the features of historical market data for CFI and can be applied for hedging purpose. The problem can be addressed by breaking it into smaller sub problems to finally reach the proposed study of the thesis. Sub Problem 1: How to validate Cost of carry implementation? This is done by analysis of the markets qualitative and quantitative properties in historical data. This is done by performing a time series analysis and distribution analysis on the time series. The quantitative model therefore has to be consistent with the underlying characteristics of the drivers. A statistical analysis will be performed to investigate the historical data. The relationship of historical data will be analysed by performing an autocorrelation test for spot and returns. These tests have been performed in the next chapter
Shejo Joseph | 7310240 Page 11
January 7, 2012
Sub Problem 2: Why CDM failed? We analyse the various reasons for the failure of the CDM with the help of Interview with a commodity trader. This helps analyse the weakness of the particular market mechanism. Sub Problem 3: Implementation of Cost of Carry model and finding the arbitrage opportunities present in the market The Cost of carry implementation is done in Part 5 of the thesis were the arbitrage opportunity of the market has been analysed. This tells the investor to know what is profitable for him whether to buy in spot market and take the benefit of return rate of to purchase futures. Sub Problem 4: Calculating the Basis risk and its impact on the long and short hedger, and to study the impact of strengthening and weakening of basis on different views. The thesis calculates the basis risk in the CFI Markets and then tries to find a relation between the Basis risk and profit or loss to the hedger. Sub Problem 5: Calculation of the hedge ratio. The thesis finally calculates the hedge ratio, by finding the relationship between the spot and the futures market. 3.4 The Sample The sample has been taken as 308 observations from Spot prices from 1-Jan-2011 to 16Dec-2011 of the Indian Commodity market MCX. Futures prices again have been taken for the same duration for 15-Dec-2011 expiry futures. The future prices for calculation of hedge ratio as 3 months futures have been assumed, as the future contracts are of 1, 2, 3... years duration. The data has been collected from the following web pages: For spot prices: http://www.mcxindia.com/SitePages/SpotMarketHistory.aspx?sLinkPage=Y
January 7, 2012
For future prices: http://www.mcxindia.com/SitePages/BhavCopy.aspx 3.5 Structure of thesis The following is the flow chart which correctly presents the step by step procedure adapted for the thesis.
Carbon Futures Instrument
Time Series and Distribution Analysis
Stochastic Volitality Jumps Non Normality of Returns
Implementation of Cost Of Carry Model
Calculation of Hedge Ratio
Figure 3: Structure of the Thesis
3.6 The Tools Used

January 7, 2012
The software used for the Quantitative analysis is Microsoft Excel 2007, and SPSS Statistics 17.0. The interview technique is used to analyse the failure of CDM in Indian Markets. 3.7 Limitations of the Thesis The scope of the thesis is purely financial and so the economic factors have not been taken into consideration, therefore it does not give the complete picture of the market. Moreover the thesis considers only futures market and not the options market as India does not have options trading for commodities. The duration of the futures contract is 1, 2, 3... years which for convenience has been taken as 3 months futures for the thesis. The hedge ratio therefore is not perfect. And the hedge effectiveness thus calculated is also an approximate value.
Page 14
January 7, 2012
Part 4 - Analysing the Spot and the Futures Market
4.1 Introduction to Analysis In this section, the descriptive statistics of the spot market will be analysed to categorise the Spot and the log returns. This analysis will help to determine the arbitrage opportunity available in the market and to give what model can be applied to this data. The data to be analysed is taken from MCX Spot prices from 1-Jan-2011 to 16-Dec-2011. The prices are been given in Appendix 3 under the Spot column of the data. They have also been plotted in the line chart given in figure 3.
1200 1000 800 600 400 200 0 01-May-11 01-Apr-11 01-Oct-11 01-Mar-11 01-Aug-11 01-Nov-11 01-Dec-11 01-Jan-11 01-Feb-11 01-Jun-11 01-Sep-11 01-Jul-11 Spot
Figure 4: Spot Market MCX India The analysis that follows is to test for the normality of the data and thereby processing of this raw data into information, indicating the useful interpretations that follow. The data analysis is done by first introducing the concept, then the data and thereafter providing the analysis for the benefit of the reader and for the proper connect between graphs and the analysis that follows.
Page 15
January 7, 2012
The Q-Q plots have been plotted to show the normality of the given data and then the hypothesis test is done using the Kolmogorov-Smirnov goodness of fit test and ShapiroWilk test. 4.2 The Dataset
In India, the Multi Commodity Exchange (MCX), provide for the online trading, and clearing and settlements for commodity futures in the country. The spot prices of Carbon Financial Instrument (CFI), and its log returns are analysed in this section. First the log normal return is calculated and the graph is plotted as given in the following figure.
log normal
0.15 0.1 0.05 Axis Title 0 -0.05 -0.1 -0.15 -0.2 -0.25 log normal
Figure 5: Log Normal Returns The data set consists of 308 observations from 1-Jan-2011 to 15-Dec-2011. The descriptive Statistics have been shown in the table and is explained in the following section. 4.3 Descriptive Statistics 4.3.1 The concept The coefficients that summarize the above data set of spot and log returns are provided in descriptive statistics table. It provides information on the central tendency along with measures of variability or dispersion, which include the mean, median, mode and measures of variance (Standard deviation), the minimum and maximum variables, skewness and
January 7, 2012
kurtosis. These provide with the useful summary of security returns and helps in analytical and empirical analysis, as they summarize the historical return behaviour. 4.3.2 The Data The table of descriptive statistics is given below Table 2: Descriptive Statistics of Spot and Log Returns
Spot Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count 853.2265372 10.14418349 851.5 676 178.3184728 31797.47774 -0.916640265 -0.205598973 691 451 1142 263647 309 log normal Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count 0.001699 0.001552 0 0 0.027242 0.000742 9.150491 -0.51706 0.296971 -0.19097 0.106001 0.523432 308
4.3.3 The Analysis The data set ranged from the minimum of `451 (on 14-Dec-2011) to a maximum of `1142 (on 3-May-2011). The lowest price came in December 2011 as the result of falling prices consistently since mid November and the trend showed tightening as an indication that the participants secured their ERU (emission reduction units) owing to the expiry deadline of 13 December in EEX and ECX exchanges.19 Owing to the positive news that the European Commission reached 7% of the compliance levels in May the prices soared to the highest levels of the year.
19
ERU Discount Shrinks as Lithuania Faces Carbon Transfer Ban | 09/12/11 | ICIS Heren, n.d., http://www.icis.com/heren/articles/2011/12/09/9515611/eru-discount-shrinks-as-lithuania-faces-carbontransfer.html.
Page 17
January 7, 2012
Analysing the log returns here we get that the biggest spike occurred on 23-Jun-2011, of around 10%, the lowest negative spike came on 20-Dec-2011 of around 19% when the pessimistic reports dragged down the energy market. Previous studies show a link of carbon price to energy prices20, oil prices21 and unanticipated weather conditions. In general the carbon market has always been linked to oil, economic expectations and energy sector results.
4.4 Histogram
The histogram is a summary graph which shows the count of the data points in various ranges of the data set. It is a rough approximation of the frequency distribution of the data. To verify the quality of the daily log returns, skewness and kurtosis is one good and basic method which helps to access the normality of the data obtained.
90 80 70 60 Frequency 50 40 30 20 10 0
Log Normal Returns
Figure 6: Log Normal Returns Frequency Distribution
20
Interaction of European Carbon Trading and Energy Prices by Derek Bunn, Carlo Fezzi:: SSRN, n.d., http://papers.ssrn.com/sol3/papers.cfm?abstract_id=993791. 21 CO2 Prices, Energy and Weather by Maria Mansanet Bataller, ngel Pardo Tornero, Enric Valor i Mic:: SSRN, n.d., http://papers.ssrn.com/sol3/papers.cfm?abstract_id=913964.
Page 18
January 7, 2012
The SPSS output for the given data set showing the distribution for the further analysis is given below
Figure 7: SPSS Output for Frequency Distribution 4.4.1 Skewness 4.4.1.1 The concept Skewness is the measure of the lack of symmetry of a distribution. For analysis we distinguish between left skewed, right skewed and normally distributed return distributions.
Figure 8: Skewness
Page 19
January 7, 2012
The box-and-whisker plot or box plot is used in analysing skewness. Usually the box plot shows the 25% and 75% quartiles, Q1 and Q3, as its top and bottom edge of the box, respectively. The median Q2 is plotted in the middle of the box. The whiskers extend out to the extremes and show the outliers. For simplifying the whiskers at the top and bottom are referred to as positive and negative whiskers.22
The box plot for the log returns is plotted below:
Figure 9: SPSS Box Plot log Returns 4.4.1.2 Analysis As in the above table 2, as the values for log returns of the relative skewness are smaller than zero, it is left skewed. There is a higher probability of high negative monthly returns when compared to the normal distribution.23 The outliers for the normal distribution are plotted in the Box plot given above. The box plot shows the deviation towards the positive whiskers again confirming the left skewness.
22
Wolfram Demonstrations Project, Wolfram Demonstrations Project, n.d., http://demonstrations.wolfram.com/ExploringSkewnessInBoxPlots/. 23 PhD, CFA, CPA Frank J. Fabozzi, Roland Fuss, and Dieter G. Kaiser, The Handbook of Commodity Investing, 1st ed. (Wiley, 2008).
Page 20
January 7, 2012
4.4.2 Kurtosis 4.4.2.1 The concept The degree of peakedness or flatness of a probability distribution is known as kurtosis. It is a measure that the event occurrence likelihood is extreme in relation with the normal distribution. The Figure given explains this phenomenon.24 The value of kurtosis is calculated by the formula:
The components of the equation are:
which is nothing but the variance
1. Platykurtic: appear flatter than the normal distribution curve and has a kurtosis value of less than 3 ( < 3)25. These curves have thin tails and so the data is less concentrated around the mean. 2. Mesokurtic: A perfect mesokurtic curve is also called as normal curve as it is perfectly symmetric along the axis; which is not skewed in any direction (=3).26 3. Leptokurtic: these curves have higher peaks around the mean than the normal curve. These curves usually have fat tails (>3).27
24
Kurtosis - Definition of Kurtosis in the Medical Dictionary - by the Free Online Medical Dictionary, Thesaurus and Encyclopedia., n.d., http://medical-dictionary.thefreedictionary.com/kurtosis. 25 Platykurtic Definition | Investopedia, n.d., http://www.investopedia.com/terms/p/platykurtic.asp#axzz1lmPPJ9LR. 26 Statistics Primer: Mesokurtic Curve, n.d., http://allpsych.com/stats/unit1/18.html. 27 Leptokurtic Definition | Investopedia, n.d., http://www.investopedia.com/terms/l/leptokurtic.asp#axzz1lmPPJ9LR.
Page 21
January 7, 2012
Figure 10: Kurtosis Concept The risk-averse investors always prefer negative excess kurtosis to positive or in comparison to normal distribution lower probability of extreme values. Investors do not appreciate negative skewness and positive excess kurtosis because they imply more overall large returns both positive and negative compared to the normal distribution. Generally, larger negative returns are not compensated for by larger positive returns.28
4.4.2.2 The Analysis The above histogram clearly shows that the given data is leptokurtic as there is a distinct peak at the mean. Moreover the table 2 confirms by the value of kurtosis for the log returns as 9.15 which is much more than the normal value of =3. The Fat tail of the leptokurtic curve tells that the returns are a bit more difficult to predict and so makes the investment risky. 4.5 Statistical Tests for Deviation from Normality Using SPSS for testing of deviation from normality, Kolomogorov-Smirnov test and the Shapiro-Wilk tests are performed. Of these the Shapiro-Wilk (1965) is preferred. The hypothesis of the test is given below H0= the data set is normally distributed H1=the data set is not normally distributed
28
Fabozzi, Fuss, and Kaiser, The Handbook of Commodity Investing.
Page 22
January 7, 2012
Table 3: SPSS Output Tests for Normality
The above table showcases the output for the tests. The significance value or the p-value for the test is 0 or p < 0.05 therefore the null hypothesis is rejected. Failing of the normality test lets us state with 95% confidence that the data does not fit the normal distribution.29 The Q-Q plot is then plotted to show the deviance from the normal distribution from the log return series. The plot is provided below
Figure 11: SPSS Output for Normal Q-Q Plot of Log Normal The plot is prepared by comparing the actual probabilities of the random variable and the expected probability of the normal distribution i.e. by determining the proportion of observed scores that fall below any one score to the z-score which would fit that proportion in case of normal distribution, then the z-score will cut off proportion and would be
29
PsyStats - Shapiro-Wilk Test, n.d., http://psystats.wikispaces.com/Shapiro-Wilk+Test.
Page 23
January 7, 2012
translated back to original metric to the raw score.30 The scatter plot so created provides the relationship to the actual observed values to the expected values if the data was normally distributed.
30
The UNIVARIATE Procedure: Interpretation of Quantile-Quantile and Probability Plots, n.d., http://support.sas.com/documentation/cdl/en/procstat/63104/HTML/default/viewer.htm#procstat_univariat e_sect040.htm.
Page 24
January 7, 2012
The interpretations for the Q-Q plot is summarized in the following table Table 4: Interpretation of the Q-Q plot31 Description of Point Pattern all but a few points fall on a line left end of pattern is below the line; right end of pattern is above the line long tails at both ends of the data distribution Possible Interpretation outliers in the data
left end of pattern is above the line; right end of short tails at both ends of the data pattern is below the line curved pattern with slope increasing from left to right curved pattern with slope decreasing from left to right staircase pattern (plateaus and gaps) data distribution is skewed to the left data have been rounded or are discrete data distribution is skewed to the right distribution
In simple terms, if the data are normal then they would fall on the straight line. The Z- scores value is computed by the formula:
Where
= Log return = Mean of log returns
and,
= Standard deviation of log returns
Analysis shows that the observed plot presents fat tails, with chances of distribution outliers more and deviation from normal. This can be seen in the detrended normal Q-Q plot of the SPSS output plotted below.
31
Ibid.
Page 25
January 7, 2012
Figure 12: SPSS Output Detrended Normal Q-Q Plot of Log Normal The plot and the tests lead to rejection of the hypothesis of normal distribution. 4.6 Autocorrelation Autocorrelation plot suggests that the data is stationary. The seasonal patterns of time series can be examined by the correlograms. The graphs display graphically and numerically the autocorrelation and it is the correlation of the members of the series of observation with respect to time. It shows that the how the present data is projected on the basis of the past data. The lags show that not only the value of the immediate past, i.e. the previous day of the spot market for the data presented, but also the past few days are correlated in the time series. The table of autocorrelation has been presented below.
Page 26
January 7, 2012
Table 5: SPSS Output for Autocorrelation
The data set shows that the autocorrelation for 1 to 5 days is almost 1, and the values decay slowly. 4.7 Intra-phases Futures and the Role of Convenience Yield The thesis will analyse the advantage of holding a future instead of a spot in the next part. It will be analysing the arbitrage opportunity, and showing that the spot and future prices converge at the expiry date. It will also be looking at the Basis Risk impact of hedging and then finally present the ideal hedge ratio. As shown earlier, the spot and futures correlation coefficient is 95.63%. So the analysis shows the Spot prices to model the dynamics of future price derivatives.
The following plotted chart shows the future and spot prices movement in MCX.
Page 27

1200 1000 800 600 Spot 400 200 0 1-Mar-11 1-Apr-11 1-Aug-11 1-Oct-11 1-Jan-11 1-Jun-11 1-Jul-11 15-Dec-11
January 7, 2012
1-May-11
1-Nov-11
1-Feb-11
1-Sep-11
Figure 13: Spot and Future movement MCX 4.8 Why CDM Failed? The reason is provided with the interview with Mr. Vinay Soni, trader, of Foretell Business Solution Pvt. Ltd. for understanding the reasons for the CDM crisis after the recession. 4.8.1 The Interview: dated 21/12/2011 Shejo Joseph (SJ): Mr. Vinay Soni, what do you think is the future of Carbon Credit? Vinay Soni (VS): It all depends on how the second phase of the UNFCCC is implemented. SJ: So how do you think the First phase fared in terms of the outcomes? How do you see it as a business opportunity for a trader? VS: We stopped trading in Carbon Credits as we dont think it is a feasible market. We started to trade in Carbon Credits because we saw it as an upcoming market. The CDM projects undertaken for providing credits to the Annex 1 countries by India made Foretell Business Solution Pvt. Ltd. to closely be linked with the market and track it as we provide for business consulting, but since the recession. The prices of credits have fallen by more half so we stopped trading. SJ: What do you think was the main reason for such a fall in the prices?
1-Dec-11
Page 28
January 7, 2012
VS: The CDM projects were more or less of charity done by the Annex 1 nations so this stopped when the 2008 crisis came as any country would be more worried for investing in its prime interests when credit crunch appears. The fall in the prices from 30 to 8 in February 2009 in a mere duration of 9 months cements this fact. 4.9 Part 4 conclusion In this part, the analysis has been done to show the features which drive the price dynamics. The SPSS and the data structure analysis showed that the historical data distribution has not been normal. Moreover there has been a greater tendency of higher extremes than normal distribution. The fat tail shows the historical prices more appropriately. The Log normal distribution showed that the actual returns contained spikes. The volatility showed clustering over time. A correlation analysis showed that the data is perfectly correlated, and follows all the trends commonly shown by normal commodity assets. The following part of the thesis determines the arbitrage opportunity and thereby calculating basis risk. Finally hedge ratio has been calculated.
Page 29
January 7, 2012
Part 5: The Hedging Concept 5.1 Introduction to Hedging Concept The purpose of this chapter is to bring to notice how companies can hedge their emissions in India using futures, as options are not available in commodity market. This chapter also provides the arbitrage opportunity in the market calculation by using cost of carry model. The chapter provides details on the effect on basis risk for the hedging with intention to delivery and also for the hedging with no intention to delivery in both views of long and short in the market. Finally the hedge ratio calculation is done and hedge effectiveness is calculated. 5.2 Calculation of Arbitrage Opportunity A relationship between Spot and Futures must be analysed. A method for analysing the Futures Price correctly is by the Cost and Carry Model with zero convenience yield. The cost-of-carry relationship is expressed as
32
where, is the risk free rate taken as 8%, z is the storage cost, is the current price of Futures, T-t is the number of days to maturity, is the convenience yield. The underlying benefit of holding a commodity physically rather than holding a long position in the Futures market is called Convenience Yield.33 In perfect market conditions, the pricing relationship so expressed should be satisfied at every instant in Futures contract life i.e. when the convenience yield is equal to zero. This condition of the market is said to be at Full carry.
32 33
Fabozzi, Fuss, and Kaiser, The Handbook of Commodity Investing. Ibid.
Page 30
January 7, 2012
From the above equation we can derive to the equation for calculating convenience yield. This is given by ( )
As Carbon Emissions is not a physical entity there is no storage costs, this implies that the convenience yield is calculated only over the risk free premium r T, so the excess over the given convenience yield is calculated. For example the arbitrage opportunity is calculated on the convenience yield, by calculating excess of return over the convenience yield. If the excess over rate of return convenience is positive then the arbitrage opportunity is of buy spot sell futures. Whereas if the excess over rate of return is negative then the arbitrage opportunity is to buy futures sell spot. In case of zero value of the excess over return the interpretation is that the market is at Full Carry. This calculation in excel is shown in the data for 3 month spot and future below, and for full year in Appendix 3. Table 6: Arbitrage Opportunity Decisions
FUTURES 14-DECDATE 14-Dec-11 13-Dec-11 12-Dec-11 10-Dec-11 9-Dec-11 8-Dec-11 7-Dec-11 6-Dec-11 5-Dec-11 3-Dec-11 2-Dec-11 1-Dec-11 30-Nov-11 29-Nov-11 28-Nov-11 26-Nov-11 25-Nov-11 SPOT 495 527.5 545.5 545.5 530.5 498.5 504.5 504 540.5 540.5 551 580 553.5 552.5 535.5 535.5 551 11 573 573 573 579 579 585 591 597 603 609 609 615 621 627.5 634 640.5 640.5 Basis -78 -45.5 -27.5 -33.5 -48.5 -86.5 -86.5 -93 -62.5 -68.5 -58 -35 -67.5 -75 -98.5 -105 -89.5 Convenience Yield 5340.97% 1509.95% 598.39% 435.08% 532.19% 834.33% 722.01% 686.77% 399.39% 362.94% 281.00% 152.76% 280.00% 290.38% 362.53% 343.96% 274.69% DTM 1 2 3 5 6 7 8 9 10 12 13 14 15 16 17 19 20 Excess r=8% 5332.97% 1501.95% 590.39% 427.08% 524.19% 826.33% 714.01% 678.77% 391.39% 354.94% 273.00% 144.76% 272.00% 282.38% 354.53% 335.96% 266.69% over Arbitrage opportunity Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures
Page 31

24-Nov-11 23-Nov-11 22-Nov-11 21-Nov-11 19-Nov-11 18-Nov-11 17-Nov-11 16-Nov-11 15-Nov-11 14-Nov-11 12-Nov-11 11-Nov-11 10-Nov-11 9-Nov-11 8-Nov-11 7-Nov-11 5-Nov-11 4-Nov-11 3-Nov-11 2-Nov-11 1-Nov-11 31-Oct-11 29-Oct-11 28-Oct-11 27-Oct-11 26-Oct-11 25-Oct-11 24-Oct-11 22-Oct-11 21-Oct-11 20-Oct-11 19-Oct-11 18-Oct-11 17-Oct-11 15-Oct-11 14-Oct-11 13-Oct-11 12-Oct-11 11-Oct-11 10-Oct-11 591.5 647 622 647.5 647.5 660.5 676 690 692.5 692.5 692.5 676 680.5 685 674.5 638.5 638.5 655 642 669 695 722 722 721 700 720 733 715 715 693.5 681 696 701 705 705 696 718.5 713 709.5 690.5 647 653.5 660 666.5 673 673 680 687 687 687 680 680 680 680 680 687 687 687 694 701 708 715 708 708 701 708 708 701 694 694 694 701 708 708 708 708 715 708 708 708 -55.5 -6.5 -38 -19 -25.5 -12.5 -4 3 5.5 5.5 12.5 -4 0.5 5 -5.5 -48.5 -48.5 -32 -52 -32 -13 7 14 13 -1 12 25 14 21 -0.5 -13 -5 -7 -3 -3 -12 3.5 5 1.5 -17.5 155.88% 16.58% 94.11% 43.98% 54.23% 25.34% 7.69% -5.48% -9.70% -9.39% -20.15% 6.33% -0.77% -7.43% 8.01% 70.32% 66.81% 42.46% 67.68% 39.66% 15.37% -7.90% -15.21% -13.84% 1.06% -12.27% -24.84% -13.88% -20.15% 0.48% 12.33% 4.58% 6.25% 2.63% 2.54% 10.06% -2.83% -4.01% -1.19% 13.84% 21 22 23 24 26 27 28 29 30 31 33 34 35 36 37 38 40 41 42 43 44 45 47 48 49 50 51 52 54 55 56 57 58 59 61 62 63 64 65 66 147.88% 8.58% 86.11% 35.98% 46.23% 17.34% -0.31% -13.48% -17.70% -17.39% -28.15% -1.67% -8.77% -15.43% 0.01% 62.32% 58.81% 34.46% 59.68% 31.66% 7.37% -15.90% -23.21% -21.84% -6.94% -20.27% -32.84% -21.88% -28.15% -7.52% 4.33% -3.42% -1.75% -5.37% -5.46% 2.06% -10.83% -12.01% -9.19% 5.84%
January 7, 2012
Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures
Page 32

8-Oct-11 7-Oct-11 6-Oct-11 5-Oct-11 4-Oct-11 3-Oct-11 1-Oct-11 690.5 685 669.5 657 669.5 716 716 715 715 715 715 722 729.5 737 -24.5 -30 -45.5 -58 -52.5 -13.5 -21 18.72% 22.67% 34.28% 43.49% 38.27% 9.34% 14.07% 68 69 70 71 72 73 75 10.72% 14.67% 26.28% 35.49% 30.27% 1.34% 6.07%
January 7, 2012
Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures
5.3 Basis Risk and Impact of Strengthening and Weakening of Basis Basis risk is calculated in 3 perspectives of the hedger: 1. Intention to deliver, i.e. the hedger Intends to take delivery or make delivery Since the hedger has an intention to take/make delivery the hedger enters into the contract, and remains in the contract when the price in spot market converges to the futures. This has been presented in the following table Table 7: Intention to deliver Type contract Date of entering into Long / Short contract 1-Jan11 853 NO RISK BASIS of Date Price
2. No intention to deliver (Long), i.e. the hedger intends to buy in the futures market but intends to sell before maturity. In India if the hedger does not intend to take delivery he is allowed to square off his position before 5 working days to maturity of the contract after which there is a lock in period. Now the basis risk comes into picture. This is exemplified in the following table. Table 8: No intention to deliver (He has to square up before expiry) Date of entering into (Long) 1-Jan-11 contract Closing out date Cash flows for the Long hedger 9-Dec-11 F1 579 Outflow = Spot (S1 ) + (F0 - F1 ) F0 853
Page 33
January 7, 2012
or Spot price to buy on closing out 530.5 date Profit / Loss in the futures -274 S1 Outflow = F0 - (S1 - F1 ) or Basis Outflow = F0 - (Basis) -49
Total Cash out flow for the long 256.5 hedger
The above is a contract where in the hedger enters into the contract on 1 January 2011 and the square off date is 9 December 2011. The cash flows incurred by the hedger are for buying the Carbon emission in spot on square off date i.e., ` 530.5 and the loss incurred in selling futures is ` 274. So the total cash outflow for the long hedger is ` 256.5 which shows a basis risk loss of `49. The above illustration can also show the effect of weakening of the basis as shown in the table below Table 9: Basis Weakening will help the long hedger No intention to deliver (He has to square up before expiry)
Date of entering into contract Closing out date Spot price at closing out date Cash flows for the Long hedger
Long
1-Jan-11 14-Dec-11
F0 853 F1 579 S1 530.5
F0
853
Basis ( S1 - F1)
-48.5
Total Cash out flow for the long 804.5 hedger
3. No intention to deliver (short), i.e. the hedger intends to sell in the futures market but intends to square off before maturity. This view is shown in the table below
January 7, 2012
Table 10: No intention to take delivery (He has to square up before expiry) Date of entering into contract Closing out date Cash flows for the short hedger Spot price to sell Profit / Loss in the future Total cash inflow for the short hedger 834.5 -8.5 826 S1 Basis -27 Short 1-Jan-11 11-Jan-11 F0 F1 853 861.5
The above is a contract where in the hedger enters into the contract on 1 January 2011 and the square off date is 11 January 2011. The cash flows incurred by the hedger are for buying the Carbon emission in spot on square off date i.e., ` 834.5 and the loss incurred in selling futures is ` 8.5. So the total cash inflow for the long hedger is ` 826 which shows a basis risk loss of `27. Let us see the effect of weakening of basis on a short hedger.
Page 35
January 7, 2012
Table 11: Weakening of basis will hurt the short hedger No intention to take delivery (He has to square up before expiry)
Date of entering into contract Closing out date Cash flows for the short hedger
Short 01-Jan-11 11-Jan-11
F0 F1
853 861.5
S1 F0 Basis ( S1 - F1) Total cash inflow for the short hedger 853 -27 826
834.5
So, broadly strengthening and weakening of basis either helps or hurts the hedge in one way or another. Following table summarizes the effect of strengthening and weakening of the basis
Page 36
January 7, 2012
Table 12: Effect of Strengthening and Weakening of Basis Strengthening Weakening Long hedger Short hedger Loss Profit Profit Loss
From the given table we find that the strengthening of the basis helps the short hedger or the seller of the commodity, whereas the weakening helps the long hedger or the buyer of the commodity.
5.4 Hedge Ratio Calculation Hedge ratio is calculated to determine no. of contracts that a company should buy if it has to identify and minimise the basis risk. It is defined as a ratio comparing the value of Futures purchased or sold to value of cash commodity being hedged.34 It is calculated on the changes in historic futures price at issue and its price corresponding to the futures closing date, for a few futures contracts are correlated to the changes in their corresponding spot prices on both the issue and the closing date. This is a perfect hedge if the price at the futures issue and closing dates are available for the period the company wishes to hedge for. If any of these are unavailable then the hedge is just approximation of the perfect hedge. The thesis approximates the values for the futures as the CFI futures are 1, 2, 3... years contracts. Therefore the values presented are assumed values for futures and would not give a perfect hedge ratio. But it is important for assuming these values as per the present scenario. This is shown by the fact that Reserve Bank of India (RBI) has allowed to get permission for hedging overseas in the local physical market. For instance, it is better for the companies to lock in their receipts right away on ECX, rather than trying to find the right foreign buyer at the right price and at the right time for carbon emissions.35
34
Hedge Ratio Definition | Investopedia, Investopedia, http://www.investopedia.com/terms/h/hedgeratio.asp#axzz1mg9D16Jz. 35 Cos Get Nod to Hedge Carbon Credits, Freight Deals Abroad, The Economic Times, http://articles.economictimes.indiatimes.com/2009-03-18/news/27636301_1_carbon-credits-iron-oreeuropean-climate-exchange.
Page 37
January 7, 2012
4.3 The Process The following table summarizes the changes in the future prices for the assumed 10 futures contracts of 3 month contract period
Table 13: Changes in Futures CLOSING PRICES OF 3 MONTHS FUTURES Issue date 10-Sep-11 10-Aug-11 10-Jul-11 10-Jun-11 10-May-11 10-Apr-11 10-Mar-11 10-Feb-11 10-Jan-11 10-Dec-10 Price 807 738 949 1081 1104 1083 980 915 870 853 Closing Date 15-Dec-11 15-Nov-11 15-Oct-11 15-Sep-11 15-Aug-11 15-Jul-11 15-Jun-11 15-May-11 15-Apr-11 15-Mar-11 Price 477 687 708 790.5 760 920 1070 1081.5 1071.5 990 Changes -330 -51 -241 -291 -344 -163 90 167 202 137
All the values in the above table have been assumed, and the duration for each of the contract is taken as 3 month futures as opposed to 1,2,3.... years futures.
Now the standard deviation for the changes in the futures prices for the expiry from 15 Mar 2011 to 15 Dec 2011, 3 month futures
Page 38
January 7, 2012
Similarly the changes in the corresponding dates of the Spot prices are captured in the following table.
Table 14: Changes in Spot CLOSING PRICES OF SPOT Dates 10-Sep-11 10-Aug-11 10-Jul-11 10-Jun-11 10-May-11 10-Apr-11 10-Mar-11 10-Feb-11 10-Jan-11 10-Dec-10 Price 768 734 807 1090 1099 1078 993 908 862 852 Dates 15-Dec-11 15-Nov-11 15-Oct-11 15-Sep-11 15-Aug-11 15-Jul-11 15-Jun-11 15-May-11 15-Apr-11 15-Mar-11 Price 451 693 705 797 803 778 1065 1071 1082 1045 Changes -317 -42 -102 -293 -296 -301 72 163 220 194
As with the future prices in the above table we again calculate the standard deviation of the changes in spot prices
Page 39
January 7, 2012
Next step is to calculate the correlation of both the changes. With the use of excel we calculate the correlation. The output of the correlation by using the data analysis tab is given below Table 15: Correlation Output using Excel 2007 Changes in futures Changes in futures Changes in spot 1 0.950568367 1 Changes in spot
Now to calculate the hedge ration we use the following formula
So by putting in the calculated values of the correlation coefficient in the above formula, we get
and
along with
Now assuming that the company hedges for the maximum amount of 10000 tons, permitted by contract specification of MCX for CFI36 we get the number of contracts to be hedged. For this we divide 10000 tons by 200 tons, as per contract 200 tons of carbon emission allowances are trade. So delivery unit =200.37 So we need
So, 49 contracts would be required to hedge 10000 tons of carbon emissions allowances. Finally we calculate the hedge effectiveness, which is given by the formula
which comes out to be 90.36%
36 37
CarbonCredits_dec08.pdf, http://www.mcxindia.com/Uploads/Products/100/CarbonCredits_dec08.pdf. Ibid.
Page 40
January 7, 2012
Page 41
January 7, 2012
Part 6 Conclusion The purpose of the thesis has been for showing that cost of carry model can be implemented for predicting the future price and also the model can be implemented to find arbitrage opportunity in the spot and the futures market. A cost of carry implementation along with calculation for basis risk showcases the effect of strengthening and weakening of basis on the long and the short hedger. The market analysed was MCX India for spot and futures pricing. The need for such models comes from the establishment of carbon futures instrument, which has led to creation of carbon assets, like emission allowances and the forth coming ESCerts India. The Kyoto protocol was ratified by Annex 1 countries for addressing the problem of global warming, and climate change. The flexibility of choosing from the available market mechanisms for the most cost efficient implementation lets the countries to adapt to the 3 market mechanisms of Joint Implementation, Emission Trading Schemes and Clean Development Mechanisms. The objective of the paper is to implement cost of carry model, Basis risk calculation and to calculate hedge ratio for hedging the calculated basis risk for the year 2011. In order to do so, it is necessary to highlight the main characteristics of the market that might affect the pricing. An empirical analysis is done to show the main features of the historical price series of the spot price dynamics. The descriptive statistical analysis shows that the historical distribution diverges from the standard normal distribution and has fat tails as well as volatility clustering. More over an autocorrelation test proves that the data is dependent on the historical pricing. It also shows that there is presence of extreme values, and also a jump component. All this proves that there is a possibility of using cost of carry model. The condition appears valid for intra phase futures. Spot and futures show co integration. The cost of carry model is implemented to find the arbitrage opportunity in the market and so the model is help for arbitrageur. Then basis risk is calculated and the strengthening and weakening of the basis effect is calculated on the long and the short hedger.
Page 42
January 7, 2012
Finally the hedge ratio is calculated as 0.970868 and then its significance is calculated on an example where the number of contracts to be hedged is calculated. The effectiveness of the hedge is also calculated to be 90.36%. The thesis has some implication on the risk management techniques because the companies that participate in market need to deploy this in their day to day trading practices. As the market is growing so the knowledge of this market instrument will help to achieve the main goal of ETS.
Future Research Proposal The thesis is focused on futures. The market however provides a wider variety of assets, which may be further researched upon. Further correlation amongst these instruments can also be looked into. Furthermore the phase 1 of the research comes to an end this year so the conclusions may not be applicable in phase 2. So, new studies based on the new phase needs to be looked into.
Page 43
January 7, 2012
Bibliography
2010 Record Temperature. International. World Meterological Organization, 2012-01-04 20:21:33 http://www.wmo.int/pages/mediacentre/press_releases/pr_906_en.html.
A Discussion Paper on India-s Perform Achieve and Trade (PAT) Scheme.pdf, 2012-01-20. http://www.emergent-ventures.com/docs/A%20Discussion%20Paper%20on%20Indias%20Perform%20%20Achieve%20and%20Trade%20(PAT)%20Scheme.pdf.
CarbonCredits_dec08.pdf, 2012-02-20 http://www.mcxindia.com/Uploads/Products/100/CarbonCredits_dec08.pdf.
CDM: CDM Benefits, 2012-02-05 14:09:27 http://cdm.unfccc.int/about/dev_ben/index.html.
CO2 Prices, Energy and Weather by Maria Mansanet Bataller, ngel Pardo Tornero, Enric Valor i Mic :: SSRN, 2012-02-10 18:45:27 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=913964.
Cos Get Nod to Hedge Carbon Credits, Freight Deals Abroad. The Economic Times, 2012-02-19 11:52:40. http://articles.economictimes.indiatimes.com/2009-0318/news/27636301_1_carbon-credits-iron-ore-european-climate-exchange.
Environment department. State and Trends of the Carbon Market 2010. Washington DC: World Bank, June 2011.
ERU Discount Shrinks as Lithuania Faces Carbon Transfer Ban | 09/12/11 | ICIS Heren, 2012-02-10 17:23:03 http://www.icis.com/heren/articles/2011/12/09/9515611/eru-discount-shrinks-aslithuania-faces-carbon-transfer.html.
Fabozzi, PhD, CFA, CPA Frank J., Roland Fuss, and Dieter G. Kaiser. The Handbook of Commodity Investing. 1st ed. Wiley, 2008.
Page 44
EMISSION TRADING AND RISK HEDGING Global Efforts to Mitigate Climate Change and Kyoto Mechanisms.pdf, 2012-01-25.
January 7, 2012
http://www.climatechange.lk/DNA/data/Programme%20Schedule/Academic%20StaffOUSL/Global%20efforts%20to%20Mitigate%20Climate%20Change%20and%20Kyoto%20 Mechanisms.pdf.
Hedge Ratio Definition | Investopedia. Investopedia, 2012-02-18 03:27:05 http://www.investopedia.com/terms/h/hedgeratio.asp#axzz1mg9D16Jz.
IN-2: Perform, Achieve, Trade (PAT) Scheme, 2012-01-28 09:24:01 http://iepd.iipnetwork.org/policy/perform-achieve-trade-pat-scheme.
Interaction of European Carbon Trading and Energy Prices by Derek Bunn, Carlo Fezzi :: SSRN, 2012-02-10 18:18:38 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=993791.
Kurtosis - Definition of Kurtosis in the Medical Dictionary - by the Free Online Medical Dictionary, Thesaurus and Encyclopedia., 2012-02-08 16:32:56 http://medicaldictionary.thefreedictionary.com/kurtosis.
Kyoto Protocol, 2012-01-07 21:32:01 http://unfccc.int/kyoto_protocol/items/2830.php.
Leptokurtic Definition Investopedia, 2012-02-08 18:54:52 http://www.investopedia.com/terms/l/leptokurtic.asp#axzz1lmPPJ9LR.
Mickey Z., and Planet Green. TLC Family Green Glossary: Kyoto Protocol; Cap-and-Trade. TLC, 2012-01-04 22:49:43. http://tlc.howstuffworks.com/family/green-glossary-kyotoprotocol.htm.
Platykurtic Definition | Investopedia, 2012-02-08 17:48:37 http://www.investopedia.com/terms/p/platykurtic.asp#axzz1lmPPJ9LR.
PsyStats - Shapiro-Wilk Test, 2012-02-11 10:57:46 http://psystats.wikispaces.com/ShapiroWilk+Test. Shejo Joseph | 7310240 Page 45
January 7, 2012
Schofield, Neil C. Commodity Derivatives: Markets and Applications. John Wiley and Sons, 2011.
Shah, Anup. COP7Marrakesh Climate Conference Printer Friendly Version Global Issues 2012-01-07 13:56:42, November 11, 2001. http://www.globalissues.org/print/article/297.
Statistics Primer: Mesokurtic Curve, 2012-02-08 18:53:55 http://allpsych.com/stats/unit1/18.html.
The State of Voluntary Carbon Offsetting in the FTSE 100.pdf, 2012-01-22 00:20:10 http://www.carbonretirement.com/sites/default/files/The%20State%20of%20Voluntary%2 0Carbon%20Offsetting%20in%20the%20FTSE%20100.pdf.
The UNIVARIATE Procedure: Interpretation of Quantile-Quantile and Probability Plots, 2012-0211 12:53:52 http://support.sas.com/documentation/cdl/en/procstat/63104/HTML/default/viewer.htm#p rocstat_univariate_sect040.htm.
Trends in Atmospheric Carbon Dioxide. Government. National Oceanic & Atmospheric Administeration, 2012-01-25 16:28:35 http://www.esrl.noaa.gov/gmd/ccgg/trends/.
UNFCCC. "Global Warming Potentials. International, 2012-01-25 20:45:32. http://unfccc.int/ghg_data/items/3825.php.
Wolfram Demonstrations Project. Wolfram Demonstrations Project, 2012-02-11 11:13:07. http://demonstrations.wolfram.com/ExploringSkewnessInBoxPlots/.
Page 46
January 7, 2012
Appendix 1: List Annex I parties to the UNFCCC
1. Australia 2. Ireland 3. Austria 4. Iceland 5. Belarus 6. Luxemburg 7. Belgium 8. Monaco 9. Bulgaria 10. Netherlands 11. Canada 12. New Zealand 13. Croatia 14. Norway 15. Czech Republic 16. Poland 17. Denmark 18. Portugal 19. Estonia 20. Romania 21. Finland 22. Russian Federation 23. France 24. Slovakia 25. Germany 26. Slovenia 27. Greece 28. Spain 29. Hungary
Page 47
January 7, 2012
30. Sweden 31. Lithuania 32. Switzerland 33. Liechtenstein 34. Turkey 35. Latvia 36. Ukraine 37. Japan 38. United Kingdom of Great Britain 39. Italy 40. United States of America
Page 48
January 7, 2012
Brundtland Report Concept of sustainable Development

1987 1988
United nations framework convention
European Directive for an emission trading Phase 1 EU-ETS Phase 2 EU-ETS

2008 2012
on climate change (UNFCCC) scheme (ETS)

1992 1997 2003 2005 2007
Toronto conference Creation of IPCC
Kyoto Protocol Agreement
Kyoto Protocol entered into force
First commitment of the Kyoto Protocol
Appendix 2: The COP/MOP negotiations
Date COP 1
Location Berlin (Germany)
Main achievements Report of the Global Environment Facility to the Conference of the Parties on the development of an operational strategy and on initial activities in the field of climate change (matters relating to arrangements for the financial mechanism)
COP 2
8-19 1996
July Geneva
Activities implemented jointly: annual review of
(Switzerland) progress under the pilot phase.
Report of the Global Environment Facility to the Conference of the Parties COP 3 1-10 1997 Dec Kyoto (Japan) Kyoto Protocol: Adoption of a protocol or another legal instrument:
Fulfilment of the Berlin Mandate COP 4 2-13 Nov.1998 Buenos Aires Kyoto Protocol: Review of the implementation of (Argentina) commitments.
Development and transfer of technologies
Page 49
January 7, 2012
COP 5
25
Oct.5 Bonn (Germany)
Adoption of The Buenos Aires plan of actions on: The financial mechanism; Development and transfer of technologies Implementation of Article 4.8 and 4.9 of the Convention Activities implemented jointly under the pilot phase ; The work programme on mechanisms of the Kyoto Protocol ; Preparatory work for a protocol ;and ensures achievement of the decisions within the mentioned time frame.
Nov. 1999
COP 6
13-24 Nov. The 2000 (The
Hague The Convention and its Protocol gave the world hope and direction. The challenge facing
Netherlands)
participants at the 6th Conference of the Parties (COP 6) to decide how to implement the goals agreed by Parties has not been achieved.
COP 7
29
Oct.-9 Marrakech (Morocco)
Success with the Marrakech Accords drafting the flexibility mechanisms of the Kyoto Protocol (Clean Development Mechanism and Joint Implementation plus trading of allowances)
Nov. 2001
COP 8
23
Oct.1 New-Delhi (India)
The Delhi Ministerial Declaration On Climate Change and Sustainable Development Round-table discussion 1: Climate change,
Nov. 2002 COP 9 1-12 2003
Dec. Milan (Italy)
adaptation, mitigation and sustainable development
Round-table discussion 2: Technology, including technology use and development and the transfer of technologies
Round-table discussion 3: Assessment of progress at the national, regional and international levels to fulfill the promise and objective enshrined in the climate change agreements, including the scientific, information, policy and financial aspects
January 7, 2012
COP 10
6-17 2004
Nov. Buenos Aires Discussions at COP 10 highlighted a range of (Argentina) climate-related issues including, the impacts of climate mitigation change policies and and adaptation their measures, and
impacts,
technology. Participants had also taken stock of the entry into force of the Kyoto Protocol COP 11 28 Nov. 9 Montral Dec. 2005 (Canada) The Kyoto Protocol has been switched on, a dialogue about the future action has begun, parties have moved forward work on adaptation and advanced the implementation of the regular work programme of the Convention and of the Protocol COP 12 6-17 2006 Nov. Nairobi (Kenya) Report of the co-facilitators of the dialogue on longterm cooperative action to address climate change by enhancing implementation of the Convention COP 13 3-14 2007 Dec. Bali (Indonesia) Bali Road Map (four pillars : mitigation, adaptation, finance and technology transfer) Setting up AWGLCA and AWG-KP
Page 51
January 7, 2012
Appendix 3: Cost of Carry Implementation (Data Source for spot and future from MCX)
Date
Spot
15-Dec11
Basis
Convenience yield
DTM
Excess return over 8%
Arbitrage Opportunity
16-Dec-11 15-Dec-11 14-Dec-11 13-Dec-11 12-Dec-11 10-Dec-11 9-Dec-11 8-Dec-11 7-Dec-11 6-Dec-11 5-Dec-11 3-Dec-11 2-Dec-11 1-Dec-11 30-Nov-11 29-Nov-11 28-Nov-11 26-Nov-11 25-Nov-11 24-Nov-11 23-Nov-11 22-Nov-11 21-Nov-11 19-Nov-11 18-Nov-11 17-Nov-11 16-Nov-11 15-Nov-11 14-Nov-11 12-Nov-11 11-Nov-11 10-Nov-11 9-Nov-11 8-Nov-11 7-Nov-11
477 451 495 527.5 545.5 545.5 530.5 498.5 504.5 504 540.5 540.5 551 580 553.5 552.5 535.5 535.5 551 591.5 647 622 647.5 647.5 660.5 676 690 692.5 692.5 692.5 676 680.5 685 674.5 638.5 477 573 573 573 579 579 585 591 597 603 609 609 615 621 627.5 634 640.5 640.5 647 653.5 660 666.5 673 673 680 687 687 687 680 680 680 680 680 687 -26 -78 -45.5 -27.5 -33.5 -48.5 -86.5 -86.5 -93 -62.5 -68.5 -58 -35 -67.5 -75 -98.5 -105 -89.5 -55.5 -6.5 -38 -19 -25.5 -12.5 -4 3 5.5 5.5 12.5 -4 0.5 5 -5.5 -48.5 5340.97% 1509.95% 598.39% 435.08% 532.19% 834.33% 722.01% 686.77% 399.39% 362.94% 281.00% 152.76% 280.00% 290.38% 362.53% 343.96% 274.69% 155.88% 16.58% 94.11% 43.98% 54.23% 25.34% 7.69% -5.48% -9.70% -9.39% -20.15% 6.33% -0.77% -7.43% 8.01% 70.32% 0 1 2 3 5 6 7 8 9 10 12 13 14 15 16 17 19 20 21 22 23 24 26 27 28 29 30 31 33 34 35 36 37 38 5332.97% 1501.95% 590.39% 427.08% 524.19% 826.33% 714.01% 678.77% 391.39% 354.94% 273.00% 144.76% 272.00% 282.38% 354.53% 335.96% 266.69% 147.88% 8.58% 86.11% 35.98% 46.23% 17.34% -0.31% -13.48% -17.70% -17.39% -28.15% -1.67% -8.77% -15.43% 0.01% 62.32% Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures
Page 52

5-Nov-11 4-Nov-11 3-Nov-11 2-Nov-11 1-Nov-11 31-Oct-11 29-Oct-11 28-Oct-11 27-Oct-11 26-Oct-11 25-Oct-11 24-Oct-11 22-Oct-11 21-Oct-11 20-Oct-11 19-Oct-11 18-Oct-11 17-Oct-11 15-Oct-11 14-Oct-11 13-Oct-11 12-Oct-11 11-Oct-11 10-Oct-11 8-Oct-11 7-Oct-11 6-Oct-11 5-Oct-11 4-Oct-11 3-Oct-11 1-Oct-11 30-Sep-11 29-Sep-11 28-Sep-11 27-Sep-11 26-Sep-11 24-Sep-11 23-Sep-11 22-Sep-11 21-Sep-11 20-Sep-11 19-Sep-11 638.5 655 642 669 695 722 722 721 700 720 733 715 715 693.5 681 696 701 705 705 696 718.5 713 709.5 690.5 690.5 685 669.5 657 669.5 716 716 728.5 697.5 721 724.5 761.5 761.5 750.5 776 782.5 773 800 687 687 694 701 708 715 708 708 701 708 708 701 694 694 694 701 708 708 708 708 715 708 708 708 715 715 715 715 722 729.5 737 737 744.5 752 759.5 767 774.5 774.5 782.5 790.5 790.5 798.5 -48.5 -32 -52 -32 -13 7 14 13 -1 12 25 14 21 -0.5 -13 -5 -7 -3 -3 -12 3.5 5 1.5 -17.5 -24.5 -30 -45.5 -58 -52.5 -13.5 -21 -8.5 -47 -31 -35 -5.5 -13 -24 -6.5 -8 -17.5 1.5 66.81% 42.46% 67.68% 39.66% 15.37% -7.90% -15.21% -13.84% 1.06% -12.27% -24.84% -13.88% -20.15% 0.48% 12.33% 4.58% 6.25% 2.63% 2.54% 10.06% -2.83% -4.01% -1.19% 13.84% 18.72% 22.67% 34.28% 43.49% 38.27% 9.34% 14.07% 5.57% 30.91% 19.70% 21.80% 3.28% 7.53% 13.84% 3.62% 4.37% 9.50% -0.79% 40 41 42 43 44 45 47 48 49 50 51 52 54 55 56 57 58 59 61 62 63 64 65 66 68 69 70 71 72 73 75 76 77 78 79 80 82 83 84 85 86 87 58.81% 34.46% 59.68% 31.66% 7.37% -15.90% -23.21% -21.84% -6.94% -20.27% -32.84% -21.88% -28.15% -7.52% 4.33% -3.42% -1.75% -5.37% -5.46% 2.06% -10.83% -12.01% -9.19% 5.84% 10.72% 14.67% 26.28% 35.49% 30.27% 1.34% 6.07% -2.43% 22.91% 11.70% 13.80% -4.72% -0.47% 5.84% -4.38% -3.63% 1.50% -8.79%
January 7, 2012
Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Futures Sell Spot
Page 53

17-Sep-11 16-Sep-11 15-Sep-11 14-Sep-11 13-Sep-11 12-Sep-11 10-Sep-11 9-Sep-11 8-Sep-11 7-Sep-11 6-Sep-11 5-Sep-11 3-Sep-11 2-Sep-11 1-Sep-11 31-Aug-11 30-Aug-11 29-Aug-11 27-Aug-11 26-Aug-11 25-Aug-11 24-Aug-11 23-Aug-11 22-Aug-11 20-Aug-11 19-Aug-11 18-Aug-11 17-Aug-11 16-Aug-11 13-Aug-11 12-Aug-11 11-Aug-11 10-Aug-11 9-Aug-11 8-Aug-11 6-Aug-11 5-Aug-11 4-Aug-11 3-Aug-11 2-Aug-11 1-Aug-11 30-Jul-11 800 813.5 797 775.5 758 767.5 767.5 796.5 806.5 791.5 805.5 825 825 860.5 863.5 900.5 888 877 877 866 869.5 850 830 821 821 811 837 806 802.5 802 792 751.5 734 693.5 676 676 717.5 718.5 739.5 761.5 771.5 771.5 798.5 798.5 790.5 782.5 790.5 798.5 806.5 806.5 814.5 822.5 831 839.5 848 848 839.5 839.5 839.5 831 823 823 815 807 799 791 783 783 775 767.5 760 752.5 752.5 745 737.5 745 752.5 760 760 767.5 775 783 791 799 1.5 15 6.5 -7 -32.5 -31 -39 -10 -8 -31 -25.5 -14.5 -23 12.5 24 61 48.5 46 54 43 54.5 43 31 30 38 28 62 38.5 42.5 49.5 39.5 6.5 -3.5 -51.5 -76.5 -84 -42.5 -49 -35.5 -21.5 -19.5 -27.5 -0.77% -7.55% -3.28% 3.57% 16.48% 15.38% 18.85% 4.69% 3.68% 14.16% 11.38% 6.30% 9.74% -5.14% -9.80% -24.15% -19.16% -18.21% -21.09% -16.75% -21.10% -16.77% -12.19% -11.81% -14.78% -10.87% -23.61% -14.89% -16.41% -18.75% -14.94% -2.52% 1.37% 20.43% 30.33% 32.63% 15.91% 18.11% 12.77% 7.53% 6.70% 9.26% 89 90 91 92 93 94 96 97 98 99 100 101 103 104 105 106 107 108 110 111 112 113 114 115 117 118 119 120 121 124 125 126 127 128 129 131 132 133 134 135 136 138 -8.77% -15.55% -11.28% -4.43% 8.48% 7.38% 10.85% -3.31% -4.32% 6.16% 3.38% -1.70% 1.74% -13.14% -17.80% -32.15% -27.16% -26.21% -29.09% -24.75% -29.10% -24.77% -20.19% -19.81% -22.78% -18.87% -31.61% -22.89% -24.41% -26.75% -22.94% -10.52% -6.63% 12.43% 22.33% 24.63% 7.91% 10.11% 4.77% -0.47% -1.30% 1.26%
January 7, 2012
Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures
Page 54

29-Jul-11 28-Jul-11 27-Jul-11 26-Jul-11 25-Jul-11 23-Jul-11 22-Jul-11 21-Jul-11 20-Jul-11 19-Jul-11 18-Jul-11 16-Jul-11 15-Jul-11 14-Jul-11 13-Jul-11 12-Jul-11 11-Jul-11 9-Jul-11 8-Jul-11 7-Jul-11 6-Jul-11 5-Jul-11 4-Jul-11 2-Jul-11 1-Jul-11 30-Jun-11 29-Jun-11 28-Jun-11 27-Jun-11 25-Jun-11 24-Jun-11 23-Jun-11 22-Jun-11 21-Jun-11 20-Jun-11 18-Jun-11 17-Jun-11 16-Jun-11 15-Jun-11 14-Jun-11 13-Jun-11 11-Jun-11 793 790 825 826 829.5 829.5 831.5 805.5 778.5 765 783 783 777.5 748 772 761 807 807 827 845.5 872.5 866.5 860.5 860.5 876.5 840.5 868 827 785.5 785.5 858.5 954.5 954.5 977.5 995.5 995.5 1020.5 1044.5 1065 1074.5 1077.5 1077.5 799 807 815 807 799 791 791 783 775 775 783 920 920 929.5 939 948.5 948.5 958 958 967.5 977.5 987.5 997.5 1007.5 1007.5 1007.5 1007.5 1007.5 1007.5 1007.5 1007.5 1017.5 1028 1038.5 1049 1059.5 1059.5 1059.5 1070 1081 1081 1081 -6 -17 10 19 30.5 38.5 40.5 22.5 3.5 -10 0 -137 -142.5 -181.5 -167 -187.5 -141.5 -151 -131 -122 -105 -121 -137 -147 -131 -167 -139.5 -180.5 -222 -222 -149 -63 -73.5 -61 -53.5 -64 -39 -15 -5 -6.5 -3.5 -3.5 1.98% 5.55% -3.16% -5.98% -9.56% -11.96% -12.48% -7.03% -1.11% 3.18% 0.00% 38.72% 40.15% 51.49% 46.12% 51.53% 37.56% 39.38% 33.54% 30.56% 25.60% 29.27% 32.88% 34.68% 30.44% 39.37% 32.19% 42.39% 53.13% 52.52% 33.57% 13.33% 15.38% 12.48% 10.73% 12.63% 7.56% 2.86% 0.93% 1.20% 0.64% 0.63% 139 140 141 142 143 145 146 147 148 149 150 152 153 154 155 156 157 159 160 161 162 163 164 166 167 168 169 170 171 173 174 175 176 177 178 180 181 182 183 184 185 187 -6.02% -2.45% -11.16% -13.98% -17.56% -19.96% -20.48% -15.03% -9.11% -4.82% -8.00% 30.72% 32.15% 43.49% 38.12% 43.53% 29.56% 31.38% 25.54% 22.56% 17.60% 21.27% 24.88% 26.68% 22.44% 31.37% 24.19% 34.39% 45.13% 44.52% 25.57% 5.33% 7.38% 4.48% 2.73% 4.63% -0.44% -5.14% -7.07% -6.80% -7.36% -7.37%
January 7, 2012
Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Spot Sell Futures Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot
Page 55

10-Jun-11 9-Jun-11 8-Jun-11 7-Jun-11 6-Jun-11 4-Jun-11 3-Jun-11 2-Jun-11 1-Jun-11 31-May-11 30-May-11 28-May-11 27-May-11 26-May-11 25-May-11 24-May-11 23-May-11 21-May-11 20-May-11 19-May-11 18-May-11 17-May-11 16-May-11 14-May-11 13-May-11 12-May-11 11-May-11 10-May-11 9-May-11 7-May-11 6-May-11 5-May-11 4-May-11 3-May-11 2-May-11 30-Apr-11 29-Apr-11 28-Apr-11 27-Apr-11 26-Apr-11 25-Apr-11 23-Apr-11 1090 1081 1090 1092.5 1092 1092 1081.5 1088 1100 1087.5 1087.5 1087.5 1049.5 1043.5 1040 1027.5 1054.5 1054.5 1058.5 1066.5 1058 1073.5 1070.5 1070.5 1075.5 1084.5 1083.5 1098.5 1113 1113 1124 1128.5 1131 1142 1128.5 1128.5 1132 1114.5 1094.5 1093 1067.5 1067.5 1081 1081 1092 1092 1081 1070.5 1070.5 1060 1060 1060 1060 1049.5 1049.5 1049.5 1049.5 1060 1070.5 1081.5 1081.5 1081.5 1081.5 1081.5 1081.5 1081.5 1081.5 1092.5 1092.5 1103.5 1114.5 1126 1126 1137.5 1137.5 1137.5 1126 1115 1115 1104 1093 1082 1071.5 1071.5 9 0 -2 0.5 11 21.5 11 28 40 27.5 27.5 38 0 -6 -9.5 -32.5 -16 -27 -23 -15 -23.5 -8 -11 -11 -6 -8 -9 -5 -1.5 -13 -2 -9 -6.5 4.5 2.5 13.5 17 10.5 1.5 11 -4 -4 -1.61% 0.00% 0.35% -0.09% -1.92% -3.74% -1.91% -4.86% -6.86% -4.72% -4.70% -6.46% 0.00% 1.03% 1.63% 5.54% 2.67% 4.44% 3.75% 2.43% 3.80% 1.28% 1.75% 1.74% 0.94% 1.24% 1.39% 0.76% 0.22% 1.91% 0.29% 1.29% 0.93% -0.64% -0.36% -1.92% -2.40% -1.50% -0.22% -1.58% 0.58% 0.58% 188 189 190 191 192 194 195 196 197 198 199 201 202 203 204 205 206 208 209 210 211 212 213 215 216 217 218 219 220 222 223 224 225 226 227 229 230 231 232 233 234 236 -9.61% -8.00% -7.65% -8.09% -9.92% -11.74% -9.91% -12.86% -14.86% -12.72% -12.70% -14.46% -8.00% -6.97% -6.37% -2.46% -5.33% -3.56% -4.25% -5.57% -4.20% -6.72% -6.25% -6.26% -7.06% -6.76% -6.61% -7.24% -7.78% -6.09% -7.71% -6.71% -7.07% -8.64% -8.36% -9.92% -10.40% -9.50% -8.22% -9.58% -7.42% -7.42%
January 7, 2012
Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot
Page 56

21-Apr-11 20-Apr-11 19-Apr-11 18-Apr-11 15-Apr-11 14-Apr-11 13-Apr-11 12-Apr-11 11-Apr-11 9-Apr-11 8-Apr-11 7-Apr-11 6-Apr-11 5-Apr-11 4-Apr-11 2-Apr-11 1-Apr-11 31-Mar-11 30-Mar-11 29-Mar-11 28-Mar-11 26-Mar-11 25-Mar-11 24-Mar-11 23-Mar-11 22-Mar-11 21-Mar-11 19-Mar-11 18-Mar-11 17-Mar-11 16-Mar-11 15-Mar-11 14-Mar-11 12-Mar-11 11-Mar-11 10-Mar-11 9-Mar-11 8-Mar-11 7-Mar-11 5-Mar-11 4-Mar-11 3-Mar-11 1085.5 1068.5 1061 1081.5 1081.5 1072 1060 1071 1078 1078 1073 1082.5 1078.5 1094.5 1089.5 1089.5 1093 1074.5 1074.5 1088.5 1066.5 1066.5 1043 1080 1082.5 1075 1092.5 1092.5 1058 1089 1085.5 1045 982 982 986.5 993 1000 1000 993.5 993.5 963 974 1071.5 1071.5 1071.5 1071.5 1071.5 1061 1061 1071.5 1082.5 1093.5 1093.5 1093.5 1093.5 1093.5 1082.5 1082.5 1082.5 1072 1072 1072 1061.5 1061.5 1061.5 1061.5 1051 1040.5 1030 1020 1020 1010 1000 990 980 980 980 980 970.5 970.5 961 961 961 961 14 -3 -10.5 10 10 11 -1 -0.5 -4.5 -15.5 -20.5 -11 -15 1 7 7 10.5 2.5 2.5 16.5 5 5 -18.5 18.5 31.5 34.5 62.5 72.5 38 79 85.5 55 2 2 6.5 13 29.5 29.5 32.5 32.5 2 13 -1.99% 0.43% 1.50% -1.41% -1.39% -1.54% 0.14% 0.07% 0.61% 2.08% 2.75% 1.46% 1.99% -0.13% -0.92% -0.92% -1.37% -0.33% -0.33% -2.14% -0.65% -0.65% 2.42% -2.37% -4.04% -4.44% -7.99% -9.25% -4.91% -10.07% -10.93% -7.18% -0.27% -0.27% -0.86% -1.72% -3.89% -3.88% -4.29% -4.26% -0.27% -1.71% 238 239 240 241 244 245 246 247 248 250 251 252 253 254 255 257 258 259 260 261 262 264 265 266 267 268 269 271 272 273 274 275 276 278 279 280 281 282 283 285 286 287 -9.99% -7.57% -6.50% -9.41% -9.39% -9.54% -7.86% -7.93% -7.39% -5.92% -5.25% -6.54% -6.01% -8.13% -8.92% -8.92% -9.37% -8.33% -8.33% -10.14% -8.65% -8.65% -5.58% -10.37% -12.04% -12.44% -15.99% -17.25% -12.91% -18.07% -18.93% -15.18% -8.27% -8.27% -8.86% -9.72% -11.89% -11.88% -12.29% -12.26% -8.27% -9.71%
January 7, 2012
Page 57

2-Mar-11 1-Mar-11 28-Feb-11 26-Feb-11 25-Feb-11 24-Feb-11 23-Feb-11 22-Feb-11 21-Feb-11 19-Feb-11 18-Feb-11 17-Feb-11 16-Feb-11 15-Feb-11 14-Feb-11 12-Feb-11 11-Feb-11 10-Feb-11 9-Feb-11 8-Feb-11 7-Feb-11 5-Feb-11 4-Feb-11 3-Feb-11 2-Feb-11 1-Feb-11 31-Jan-11 29-Jan-11 28-Jan-11 27-Jan-11 25-Jan-11 24-Jan-11 22-Jan-11 21-Jan-11 20-Jan-11 19-Jan-11 18-Jan-11 17-Jan-11 15-Jan-11 14-Jan-11 13-Jan-11 12-Jan-11 966 964.5 967 967 961 946 942.5 941.5 921 921 921 908.5 908.5 917.5 923.5 923.5 917 908 891.5 908.5 915.5 915.5 925 946 934 937 926 926 920 926.5 904.5 892.5 892.5 883 879.5 885.5 884 875 875 844 836 840 961 961 951.5 942 942 942 932.5 923.5 914.5 914.5 914.5 914.5 914.5 914.5 914.5 914.5 914.5 914.5 914.5 914.5 923.5 923.5 923.5 923.5 914.5 905.5 896.5 887.5 887.5 878.5 878.5 878.5 878.5 878.5 878.5 870 861.5 853 844.5 844.5 853 853 5 3.5 15.5 25 19 4 10 18 6.5 6.5 6.5 -6 -6 3 9 9 2.5 -6.5 -23 -6 -8 -8 1.5 22.5 19.5 31.5 29.5 38.5 32.5 48 26 14 14 4.5 1 15.5 22.5 22 30.5 -0.5 -17 -13 -0.66% -0.46% -2.03% -3.27% -2.49% -0.53% -1.32% -2.38% -0.87% -0.86% -0.86% 0.80% 0.80% -0.39% -1.18% -1.17% -0.32% 0.85% 3.01% 0.78% 1.02% 1.01% -0.19% -2.79% -2.44% -3.94% -3.72% -4.84% -4.09% -6.03% -3.29% -1.78% -1.76% -0.57% -0.13% -1.95% -2.84% -2.80% -3.88% 0.06% 2.19% 1.66% 288 289 290 292 293 294 295 296 297 299 300 301 302 303 304 306 307 308 309 310 311 313 314 315 316 317 318 320 321 322 324 325 327 328 329 330 331 332 334 335 336 337 -8.66% -8.46% -10.03% -11.27% -10.49% -8.53% -9.32% -10.38% -8.87% -8.86% -8.86% -7.20% -7.20% -8.39% -9.18% -9.17% -8.32% -7.15% -4.99% -7.22% -6.98% -6.99% -8.19% -10.79% -10.44% -11.94% -11.72% -12.84% -12.09% -14.03% -11.29% -9.78% -9.76% -8.57% -8.13% -9.95% -10.84% -10.80% -11.88% -7.94% -5.81% -6.34%
January 7, 2012
Page 58

11-Jan-11 10-Jan-11 8-Jan-11 7-Jan-11 6-Jan-11 5-Jan-11 4-Jan-11 3-Jan-11 1-Jan-11 834.5 862 862 875 871.5 863 851.5 851.5 851.5 861.5 870 870 870 861.5 853 853 844.5 844.5 -27 -8 -8 5 10 10 -1.5 7 7 3.44% 0.99% 0.99% -0.61% -1.23% -1.24% 0.19% -0.87% -0.87% 338 339 341 342 343 344 345 346 348 -4.56% -7.01% -7.01% -8.61% -9.23% -9.24% -7.81% -8.87% -8.87%
January 7, 2012
Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot Buy Futures Sell Spot
Page 59

Master Thesis

Enviado por

Dados do documento

Descrição original:

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Master Thesis

Enviado por

Direitos autorais:

Formatos disponíveis

EMISSION TRADING AND RISK HEDGING

JOINT ACADEMIC PROGRAM

CHRIST UNIVERSITY, BANGALORE AND FACHHOCHSCHULE WUERZBURG SCHWEINFURT, GERMANY

MBA MASTER THESIS

Christ University Institute of Management Sciences Bangalore, India

Shejo Joseph | 7310240

Hochschule fr angewandte Wissenschaften Fachhochschule Wrzburg-Schweinfurt (FHWS)

EMISSION TRADING AND RISK HEDGING

Shejo Joseph MASTER THESIS

MENTOR: Prof. Dr. MBA Notger Carl

Shejo Joseph | 7310240

26.06.1987 JANUARY 2012

CERTIFICATE OF THE MENTOR

Mentors full name Prof. Dr. MBA Notger Carl

Shejo Joseph | 7310240

Shejo Joseph | 7310240

Students full name Shejo Joseph

Shejo Joseph | 7310240

Shejo Joseph | 7310240

Shejo Joseph | 7310240

Shejo Joseph | 7310240

Shejo Joseph | 7310240

Shejo Joseph | 7310240

Shejo Joseph | 7310240

INDEX OF TABLES AND FIGURES:

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Table 1: Carbon Market's Evolution, 2004-10

Carbon Market's evolution, 2004-10, Data ($ billions)

2005 2006 2007 2008 2009 2010

7.9 24.4 49.1 100.5 118.5 119.8

0.1 0.3 0.3 1 4.3 1.1

2.6 5.8 7.4 6.5 2.7 1.5

0.2 0.4 5.5 26.3 17.5 18.3

0.3 0.3 0.8 0.8 0.7 1.2

11 31.2 63 135.1 143.7 141.9

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

place targets for reduction in energy consumption.

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Part 2 - The Concepts

Figure 1: The ways to achieving GHG reduction

Schofield, Commodity Derivatives.

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Figure 2: Concept of Trading

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Schofield, Commodity Derivatives. Ibid.

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING

Part 3 - Problem Identification, Formulation and Methodology

Shejo Joseph | 7310240

EMISSION TRADING AND RISK HEDGING