The risk management within a bank is an important part given its status as a pivotal component within the capital adequency framwork stipluated in the Basel Accords. To proficiently be assessing, monitoring and managing market risk that the bank undertakes is therefore a part of the daily activities at Swedbank. For the majority of the measures and models, the bank is employing a full revaluation approach, implying a revaluation of each position under diverse market conditions specified across various scenarios to estimate risk. Prior to this thesis, Swedbank has been missing the full revaluation approach for the product commodity futures in their portfolio. The commodity futures needs to be treated differently from other futures due to their underlying being a physical product being produced, stored and transported. To help Swedbank being able to calculate and measure a diversified set of risk measures for commodity futures with high accuracy and according to market practise and implement the valuation model with results closest to market practise into their risk system, various valuation models have been replicated and compared in Python. The focus has been on investigating different variations of a model derived from the theory of storage and no arbitrage (Cost of Carry model) as well as a more advanced model developed from a belief of mean reverting short-term prices and an uncertain long-term equilibrium price (Schwartz and Smith Two Factor model). These models were replicated on three different commodity types in Swedbanks portfolio, Wheat, Rapeseed and Gasoil, to determine which valuation model that could estimate prices closest to the real prices on the market. The findings revealed that one variation of the Cost of Carry model could be matched exactly to the mark-to-market price due to the real price being known. The Schwartz and Smith Two Factor model was clearly the second best model, estimating prices very well but not always exactly. The most suited model that could match the price exactly, was chosen to be implemented into the risk system of Swedbank and had identified risk factors as interest rate, exchange rate and underlying spot price. With VaR simulations shifting the chosen risk factors, it could be proved that the commodity futures are traded back-to-back since all positions were offsetting each other. Since Swedbank is an intermediary and the business is about providing access to the market for Swedbanks customers, the back-to-back trading was something that Swedbank assumed but earlier not could prove. Furthermore, the back testing revealed that the special characteristic convenience yield could potentially be considered a risk factor in the future and that it would be relevant if the business model of commodity futures at Swedbank would change. / Riskhanteringen inom en bank är en viktig del med tanke på dess roll som en avgörande komponent inom kapitaltäckningsramverket som föreskrivs i Basel-avtalen. Att noggrant bedöma, övervaka och hantera den marknadsrisk som banken åtar sig är därför en del av de dagliga aktiviteterna på Swedbank. För de flesta åtgärder och modeller använder banken en fullständig omvärderingsmetod, vilket innebär en omvärdering av varje position under olika marknadsförhållanden specificerade över olika scenarier för att uppskatta risken. Innan det här projektet har Swedbank saknat den fullständiga omvärderingsmetoden för produkten råvaruterminer i sin portfölj. Råvaruterminer måste behandlas annorlunda än andra terminer på grund av att deras underliggande är en fysisk produkt som produceras, lagras och transporteras. För att hjälpa Swedbank att kunna beräkna och mäta en diversifierad uppsättning riskmått för råvaruterminer med hög noggrannhet och enligt marknadspraxis samt implementera värderingsmodellen med resultat som ligger närmast marknadspraxis i deras risksystem har olika värderingsmodeller replikerats och jämförts i Python. Fokuset har legat på att undersöka olika variationer av en modell som härstammar från teorin om lagring och inget arbitrage (Cost of Carry-modell) samt en mer avancerad modell som utvecklats från en tro om ett genomsnittligt återgående kortsiktigt pris och ett osäkert långsiktigt jämviktspris (Schwartz och Smith Two Factor-modell). Dessa modeller replikerades för tre olika typer av råvaror i Swedbanks portfölj: Vete, Raps och Gasol, för att avgöra vilken värderingsmodell som kunde uppskatta priser närmast de verkliga priserna på marknaden. Resultaten visade att en variation av Cost of Carry-modellen kunde matchas exakt med marknadsvärdet eftersom det verkliga priset var känt. Schwartz och Smith Two Factor-modellen var tydligt den näst bästa modellen, vilket uppskattade priserna mycket bra men inte alltid exakt. Den mest lämpade modellen som kunde matcha priset exakt valdes för att implementeras i Swedbanks risksystem och hade identifierade riskfaktorer som ränta, växelkurs och underliggande spotpris. Genom VaR-simuleringar som skiftade de valda riskfaktorerna kunde det bevisas att råvaruterminerna handlas back-to-back eftersom alla positioner neutraliserade varandra. Eftersom Swedbank är en mellanhand och affärsmodellen handlar om att ge Swedbanks kunder tillgång till marknaden, var back-to-back-handel något som Swedbank antog men tidigare inte kunde bevisa.  Vidare visade backtestingen att den särskilda karaktären convenience yield eventuellt skulle kunna betraktas som en riskfaktor i framtiden och att detta skulle vara aktuellt om affärsmodellen för råvaruterminer på Swedbank skulle förändras.

Submitted by Nelson Danilo Sykora (sykora1@gmail.com) on 2013-07-08T21:29:23Z No. of bitstreams: 1 Tese _ Nelson D Sykora.pdf: 1461672 bytes, checksum: 6346c144802522b574a243adb52ade3c (MD5) / Approved for entry into archive by Marcia Bacha (marcia.bacha@fgv.br) on 2013-08-13T19:44:44Z (GMT) No. of bitstreams: 1 Tese _ Nelson D Sykora.pdf: 1461672 bytes, checksum: 6346c144802522b574a243adb52ade3c (MD5) / Made available in DSpace on 2013-08-13T19:45:09Z (GMT). No. of bitstreams: 1 Tese _ Nelson D Sykora.pdf: 1461672 bytes, checksum: 6346c144802522b574a243adb52ade3c (MD5) Previous issue date: 2013-01-28 / The relationship between spot and future market and commodity price Backwardation have had an emphasis on the literature of economics and finance. The aim of this paper is to present the main causes responsible for the behavior of Backwardation and to identify the properties that characterize the equilibrium in agricultural commodit y prices. Be the existence of risk premium or the convenience yield, the unders tanding of the effects on the replication of future price and on the term structure of commodity prices remains an open issue. On the other hand, t he p remise of perfect p ortfolio replication and the absence of market frictions imply that the understanding of c ommodity price Backwardation comes from the understanding of the stochastic process of the underlying asset itself . The risk - neutral pricing allied with signs of reversion in prices supports pricing models such as Schwartz and Smith (2000), whose calibration and results will be presented for soybeans. / A relação entre preços do mercado spot e do mercado futuro e a evidência de Mercado Invertido (backwardation) na estrutura a termo de commodities têm tido ênfase na literatura de economia e de finanças. O objetivo deste trabalho é apresentar as principais causas responsáveis pelo comportamento de Mercado Invertido e identificar as propriedades que caracterizam o equilíbrio de preços em commodities agrícolas. Seja pela existência de prêmio de risco ou do benefício de conveniência, o entendimento dos efeitos sobre a replicação do preço futuro e sobre a estrutura a termo de preços ainda permanece em aberto. A premissa de perfeita replicação de portfólios e a ausência de fricções de mercado implicam, por outro lado, que o entendimento do comportamento de Mercado Invertido advém da compreensão do processo estocástico do próprio ativo subjacente. O apreçamento neutro ao risco, amparado pelos sinais de reversão de preços, permite a modelagem de preços conforme o proposto em Schwartz e Smith (2000), cuja calibração e os resultados serão apresentados para a soja.