Financial Risk Management

University of Edinburgh

Trading Silver and Copper
FRM Assignment

Lina LU ( s1111757) Yufei PANG ( s1145790) Jinsheng HU ( s1121232) Qi GAO ( s1150771)

2012-3-13

Contents
1. 2. 3. Introduction ................................................................................................................... 1 Market Analysis .............................................................................................................. 2 Forward curve ................................................................................................................ 3

4. Position building ................................................................................................................ 4 4.1 Assumptions ................................................................................................................ 4 4.2 Portfolio and Arbitrage ................................................................................................ 5 4.3 Efficient Frontier and Sharp ratio ................................................................................ 5 4.4 Trading Strategies ........................................................................................................ 6 5. Profit and loss Analysis ...................................................................................................... 8 6. Value at Risk .................................................................................................................... 12 6.1 The Historical Simulation ........................................................................................... 12 6.2 The Variance-Covariance Method ............................................................................. 13 6.3 Comparison and Back Test ........................................................................................ 15 7. Stress Test........................................................................................................................

References: [1] http://www.ameinfo.com/198866.html [2] http://www.unitedfutures.com/metals-gold-silver.htm [3] Gerard Cornuejols and Reha Tutuncu (21st Dec. 2006): Optimization in Finance. Cambridge University Press [4] http://www.wikiposit.org/w?searchfor=copper&rts= http://www.wikiposit.org/w?searchfor=silver&rts= [5] http://www.cmegroup.com/trading/metals/precious/silver_contract_specifications.html http://www.cmegroup.com/trading/metals/base/copper_contract_specifications.html [6] Investopedia: http://www.investopedia.com/terms/v/var.asp#ixzz1o7J9UoER [7] http://en.wikipedia.org/wiki/Margin_(finance) 22