re : mg metals : summary of var methodology and current status dear all ,
anjam and myself had a highly productive and informative set of meetings
with andreas barkchis of mg metals ny on thursday 20 th july in the ny
office . firstly we should say " thanks " to andreas for being so helpful in
addressing out numerous requests for information - we look forward to
establishing a solid working relationship with him going forward .
find below a summary of version _ 1 a for initial rough calculation of mg
metal ' s var .
also anjam , kirstee ( from london side ) and cantekin , grant , vince and myself
( houston side ) have been working for last 2 days on the spreadsheet var
model .
the current status of this effort and a plan for future progress is
summarized in the enclosed document :
v @ r methodology for mg metals positions
version _ 1 a
introduction
this document describes the initial rough model for calculations
value - at - risk for mg metals . this model will be implemented in a spreadsheet ,
which will serve as a prototype for the risktrac implementation .
risk factors
the following positions represent most of mg metal  , s risk and will be covered
by version _ 1 a :
- base metals  , positions including :
- aluminium ;
- copper ;
- gold ;
- lead ;
- nickel ;
- silver ;
- tin ;
- zinc ;
risk related to these positions will be quantified by simulating forward
prices for each metal .
- copper concentrate ;
risk related to these positions will be quantified by simulating tc charges .
- cocoa beans ;
risk related to these positions will be quantified by simulating forward
prices for cocoa beans .
therefore these 10 curves will drive the risk : price curves for aluminium ,
copper , gold , lead , nickel , silver , tin , zinc and cocoa beans plus tc curve
for copper concentrate .
assumptions and simplifications :
- for each metal we are going to use a single price curve or all types of
products ( physical , financial , lme traded , comex traded , scrap , alloy , stock ,
etc . ) ;
- delta , gamma approach for risk on options  , positions ;
components required to implement v @ r model :
- current forward prices available from mercur ;
- current implied volatilities available through reuters ;
- current positions from mercur ;
- history of prices required to calculate factor loadings and correlations
across commodities ;
methodology
version _ 1 a will be based on risk matrix approach . we will calculate principal
components for each metal and cocoa beans to take in account the correlations
along the term structure . we will also calculate the correlations across
commodities based on prompt month prices history for last 3 months .
portfolio hierarchy
each position will be assigned to one of the following portfolios under the
whole portfolio agg - metals :
- mg metal
- mg metal
- mg metall recycling gmbh , ffm ;
under each of these sub - portfolio there will be the following sub - portfolios :
- comex ;
- frame contract ;
- lme ;
- lme alloy ;
- lme metal index ;
- option call ;
- option put ;
- physical ;
- physical alloy ;
- physical real ;
- physical scrap ;
- price part . ;
- prov . billing ;
- stock ;
- stock alloy ;
- stock comex ;
- stock physical ;
- stock scrap ;
re : mg metals : summary of var methodology and current status
dear all ,
anjam and myself had a highly productive and informative set of meetings
with andreas barkchis of mg metals ny on thursday 20 th july in the ny
office . firstly we should say " thanks " to andreas for being so helpful in
addressing out numerous requests for information - we look forward to
establishing a solid working relationship with him going forward .
find below a summary of version _ 1 a for initial rough calculation of mg
metal ' s var .
also anjam , kirstee ( from london side ) and cantekin , grant , vince and myself
( houston side ) have been working for last 2 days on the spreadsheet var
model .
the current status of this effort and a plan for future progress is
summarized in the enclosed document :
v @ r methodology for mg metals positions
version _ 1 a
introduction
this document describes the initial rough model for calculations
value - at - risk for mg metals . this model will be implemented in a spreadsheet ,
which will serve as a prototype for the risktrac implementation .
risk factors
the following positions represent most of mg metal  , s risk and will be covered
by version _ 1 a :
- base metals  , positions including :
- aluminium ;
- copper ;
- gold ;
- lead ;
- nickel ;
- silver ;
- tin ;
- zinc ;
risk related to these positions will be quantified by simulating forward
prices for each metal .
- copper concentrate ;
risk related to these positions will be quantified by simulating tc charges .
- cocoa beans ;
risk related to these positions will be quantified by simulating forward
prices for cocoa beans .
therefore these 10 curves will drive the risk : price curves for aluminium ,
copper , gold , lead , nickel , silver , tin , zinc and cocoa beans plus tc curve
for copper concentrate .
assumptions and simplifications :
- for each metal we are going to use a single price curve or all types of
products ( physical , financial , lme traded , comex traded , scrap , alloy , stock ,
etc . ) ;
- delta , gamma approach for risk on options  , positions ;
components required to implement v @ r model :
- current forward prices available from mercur ;
- current implied volatilities available through reuters ;
- current positions from mercur ;
- history of prices required to calculate factor loadings and correlations
across commodities ;
methodology
version _ 1 a will be based on risk matrix approach . we will calculate principal
components for each metal and cocoa beans to take in account the correlations
along the term structure . we will also calculate the correlations across
commodities based on prompt month prices history for last 3 months .
portfolio hierarchy
each position will be assigned to one of the following portfolios under the
whole portfolio agg - metals :
- mg metal
- mg metal
- mg metall recycling gmbh , ffm ;
under each of these sub - portfolio there will be the following sub - portfolios :
- comex ;
- frame contract ;
- lme ;
- lme alloy ;
- lme metal index ;
- option call ;
- option put ;
- physical ;
- physical alloy ;
- physical real ;
- physical scrap ;
- price part . ;
- prov . billing ;
- stock ;
- stock alloy ;
- stock comex ;
- stock physical ;
- stock scrap ;