The Handbook of Corporate Financial Risk Management (2nd Edition)
First published:
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Introduction to Commodity Risk
Introduction to Commodity Risk
Foreword
Introduction
Theory and Practice of Corporate Risk Management
Theory and Practice of Optimal Capital Structure
Introduction to Funding and Capital Structure
How to Obtain a Credit Rating
Refinancing Risk and Optimal Debt Maturity
Optimal Cash Position
Optimal Leverage
Introduction to Interest Rate and Inflation Risks
How to Develop an Interest Rate Risk Management Policy
How to Improve Your Fixed-Floating Mix and Duration
Interest Rates: The Most Efficient Hedging Product
Do You Need Inflation-linked Debt?
Prehedging Interest Rate Risk
Pension Fund Asset and Liability Management
Introduction to Currency Risk
How to Develop Currency Risk Management Policy
Translation or Transaction: Netting Currency Risks
Early Warning Signals
How to Hedge High Carry Currencies
Currency Risk on Covenants
Optimal Currency Composition of Debt 1: Protect Book Value
Optimal Currency Composition of Debt 2: Protect Leverage
Cyclicality of Currencies and Use of Options to Manage Credit Utilisation
Managing the Depegging Risk
Currency Risk in Luxury Goods
Introduction to Credit Risk
Counterparty Risk Methodology
Counterparty Risk Protection
Optimal Deposit Composition
Prehedging Credit Risk
xVA Optimisation
Introduction to M&A-related Risks
Risk Management for M&A
Deal-contingent Hedging
Introduction to Commodity Risk
Managing Commodity-linked Revenues and Currency Risk
Managing Commodity-linked Costs and Currency Risk
Commodity Input and Resulting Currency Risk
Offsetting Carbon Emissions
Introduction to Equity Risk
Hedging Dilution Risk
Hedging Deferred Compensation
Stake-building
As mentioned in the introduction to this book, in some sectors (such as energy, transportation, metals and mining, and the food industry) commodity risk can be a very important component of the overall risk. What is specific to commodity risks? First, unlike currencies or interest rates, commodities come in a range of specifications.11 For an overview of commodities and commodity derivatives, see Geman (2005) or Schofield (2007). For instance, a company that needs to hedge fuel risk has to specify a variety of parameters, eg, a specific grade of crude oil (Urals, Brent, WTI, etc). Crude oil comes in many varieties and each one has a slightly different composition and price. Compare this to the currency world, where, for example, we have only one definition of the EURUSD currency rate, which is fully specified by the Reuters page (or an equivalent) on which it is shown. Therefore, any discussion of commodity risk management necessarily requires detailed specifications of the exact commodity being hedged, which is beyond the scope of this book. If those details are stripped away, managing commodity risks follow similar principles as managing currency risks.
Second, this book is
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