The Economics of Commodity Markets

The Economics of Commodity Markets is a complete introduction to the economic and econometric analysis of commodity markets. Designed to be as self-contained volume, the book provides a descriptive analysis of commodity markets, across the three main categories - energy, metals and agricultural products. For each category, the authors detail the basic physical market, the supply chain and transportation characteristics, the main price drivers, exchanges and recent evolution. The book then moves on to econometric applications to the sphere of commodity markets, including the presence of leverage effects in commodity markets, the information embedded in option prices, and the characterization of regimes in commodity markets. Together, they constitute a valuable empirical financial analysis of commodity markets which will benefit both market practitioners and researchers. Finally, various empirical applications are introduced and discussed. These applications are based on R codes that are discussed within each chapter of the book.

As commodity markets have continued their expansion an extensive and complex financial industry has developed to service them. This industry includes hundreds of participating firms, including asset managers, brokers, consultants, verification agencies and a myriad of other institutions. Universities and other training institutions have responded to this rapid expansion of commodity markets as well as their substantial future growth potential by launching specialized courses on the subject. The Economics of Commodity Markets attempts to bridge the gap between academics and working professionals by way of a textbook that is both theoretically informative and practical. Based in part on the authors teaching experience of commodity finance at the University Paris Dauphine, the book covers all important commodity markets topics and includes coverage of recent topics such as financial applications and intuitive economic reasoning. The book is composed of three parts that cover: commodity market dynamics, commodities and the business cycle, and commodities and fundamental value. The key original approach to the subject matter lies in a shift away from the descriptive to the econometric analysis of commodity markets. Information on market trends of commodities is presented in the first part, with a strong emphasis on the quantitative treatment of that information in the remaining two parts of the book. Readers are provided with a clear and succinct exposition of up-to-date financial economic and econometric methods as these apply to commodity markets. In addition a number of useful empirical applications are introduced and discussed. This book is a self-contained offering, discussing all key methods and insights without descending into superfluous technicalities. All explanations are structured in an accessible manner, permitting any reader with a basic understanding of mathematics and finance to work their way through all parts of the book without having to resort to external sources.