Commodity Averaging Methods

Select a method for averaging the rates used in fixing.

Calypso out-of-the-box provides the following methods.

Method Description

ATC

Average Then Convert – also known as Base Metals averaging.

This method averages the reference prices and the FX rates separately. It then converts the reference average to the payment currency using the FX average.

ATC – End FX

Average Then Convert – End FX

This method averages the reference prices only. It then converts the reference average to the payment currency using the end date FX rate.

CoalATC

For each weekly averaging period (Monday to Friday):

Takes the arithmetic average of the commodity reset on each business day according to the commodity fixing calendar. Round to the commodity’s rounding convention (in this case 2dp). Takes the arithmetic average of the FX reset on each business day according to the FX fixing calendar. Rounds to the FX rounding convention. Converts the Commodity Average into the settlement currency using the FX Average for that period. Rounds to the commodity’s rounding convention (in this case 2dp). Then, an arithmetic average of the above weekly averages is calculated. This final average is then rounded to the commodity’s rounding convention (in this case 2dp).

CTA

Convert Then Average – also known as Energy averaging.

This method averages the reference prices and rounds the average to the reference rounding. If an FX conversion is required, it converts each reference using the FX rate and then averages the reference converted to FX.

CoalCTA

For each weekly period (Monday to Friday):

For each business day according to both the commodity and FX fixing calendar, a price will be calculated by converting the commodity reset value into the settlement currency using the selected FX reset for the currency pair of the reference and settlement currencies. If a fixing date is a holiday according to the either holiday calendar, the fixing is excluded from the average. An arithmetic average of the above prices in the week will be calculated. This average is then rounded to the commodity’s rounding convention (in this case 2dp). Then, an arithmetic average of the above weekly average is calculated.

CTAWithFXRoll

Convert Then Average with FX Roll.

This method Averages the reference prices in the Commodity Fixings list, and rounds the average to the reference rounding.

If an FX conversion is required, it converts each reference using the FX rate and then averages the reference converted to FX.

CoalCTAWithFXRoll

For each period in the averaging period (Monday to Friday):

For each business day according to the commodity fixing calendar, a price will be calculated by converting the commodity reset value into the settlement currency using the selected FX reset for the currency pair of the reference and settlement currencies. If a fixing date happens to be an FX holiday according to the holiday calendar on the FX Reset, then the FX Reset from the previous fixing day will be used. An arithmetic average of the above prices in the week will be calculated. This average is then rounded to the commodity’s rounding convention (in this case 2dp). Then, an arithmetic average of the above weekly average is calculated.

This final average is then rounded to the commodity’s rounding convention (in this case 2dp).

Cumulative

Use with Commodity Weather Derivatives and a Commodity Curve generated with the CommodityCumulative generation algorithm.

This method sums all of the daily historical and projected quotes to get the monthly quote.

Standard

Average Price – use when there is no FX conversion.

Returns averaging results by computing the average price for the list of commodity fixings.

 

Custom Averaging Policy

You can code a custom averaging policy class, and register it in the CommodityAveragingPolicy domain. If the policy involves a foreign currency, add it to the CommodityFXAveragingPolicy domain. The policies appear in the Averaging Method menu.

 

Step 1 - For a custom Averaging Policy, the code should reside in calypsox/tk/product/commodities and be compiled. For reference, please check: calypsox/tk/product/commodities/AveragingPolicySample.java.

 

Step 2 - Add your custom policy name to the domain CommodityAveragingPolicy. If the custom policy involves a foreign currency, add the policy name to the CommodityFXAveragingPolicy domain.