Commodity Products Overview

Swaps

The Commodity Swap product uses the Commodity Reset Definition to define what values to use for both known and projected commodity prices. You can select the commodity reset definition during trade capture, and define additional fixing details in the trade.

A Commodity Swap is an exchange of payments between two parties based on either of the following:

Asian Swaps, Lookalike Swaps — fixed commodity price versus a floating price, such as an index of futures contracts.

Basis Swap — floating price versus floating price.

The Commodity Swap can be a cross-currency deal where the payment currency is different than the underlying commodity product currency.

To capture Commodity Swap Trades, please use the Pricing Sheet - Commodity Swap.

OTC Options

The Commodity OTC Option product uses the Commodity Reset Definition.

A Commodity OTC Option is a strip of Cash settled Asian or Average Rate Options. The payoff depends on an average of Reference Prices relative to a fixed Strike.

You can capture one of the following option types: PUT, CALL, Put Spread, Call Spread, Straddle, Strangle, Risk Reversal, and Synthetic Forward, as described below. The physical exercise types American and European are supported for PUT and CALL options.

To capture Commodity OTC Option Trades, please use the Pricing Sheet - Commodity Vanilla.

Listed Futures

A trade capturing commodity futures or commodity index futures that are listed on an exchange.

Commodity exchange traded Asian products are supported.

Note: the Future Commodity is now supported in exDesigner.

Listed Future Options

A trade capturing options on commodity futures or options on commodity index futures that are listed on an exchange.

Forwards

A Commodity Forward Trade is a contract to buy or sell a fixed quantity and quality of a particular commodity for delivery at a fixed date in the future at a fixed price. A forward contract differs from a futures contract in that the former is a once-only deal, for example for an odd number of barrels which may not be available on an exchange, while futures contracts are standardized contracts.  These contracts cannot be closed out by a matching transaction for hedging purposes.

The Commodity Forward now supports cross commodity unit conversion of the price units, deal units, and units for the certificates. The valuation is supported.

For example, the trade capture, valuation, and risk now support entering physically delivered commodity Forwards where the price is quoted in reference currency and reference units, but the quantity is entered in terms of the number of future contract equivalents. This is standard in the LME Base Metal OTC market, where OTC Forwards and Listed Futures are interchangeable.

In the Commodity Forward trade worksheet, you can now set the Price currency and unit independently from the currency of the underlying commodity and the deal units. Added the currency and units fields to the Price panel.

For physical commodities, the storage certificate(s) may be entered in units that are different from the physical commodity.

The conversion details should be configured in the commodity conversion table.

You can enter a Commodity Forward, generate the proper valuation, then change the units of the price and quantity (while changing the values of the price and quantity such that the new value is the equivalent of the old value) and not see a change in trade value.

You can enter Commodity Certificates in any unit which can be converted from the deal or strike units and compute the correct Discount Amount and generate the correct valuation.

You can run the Certificate Stock Report and see the correct valuation of the commodity inventories, with prices in reference currency/reference unit and quantities in the units of the individual certificate quantity units.

To capture Commodity Forward Trades, please use the Pricing Sheet - Commodity Forward.

Index Swaps

A Commodity Index Swap is a swap in which the counterparties agree to exchange cash, based on a commodity index and a money market rate.

Note: the Commodity Index Swap trade worksheet is deprecated. The Performance Swap trade worksheet should be used instead.

Swaptions

The Commodity Swaption product uses the Commodity Reset Definition. Capture it in the Pricing Sheet.

A Commodity Swaption is an option to enter into an underlying commodity swap at a future date.

To capture commodity swaption trades, please use the Pricing Sheet - Commodity Swaption.

Cap Floors

Cap — See “Call” under OTC Options above.

Floor — See “Put” under OTC Options above.

Swaps

An exotic swap is a swap where the structure of coupon and principal payments is customized using the Calypso eXSPress language. It allows you to define exotic payout formulas on the fly. The payout formulas require the definition of exotic variables. The Commodity Reset is supported as a quotable variable.