Commodity Derivatives – A Financial Engineering Stadium Generale

Last Saturday, March 29, 2008 I joined the Stadium Generale in Seminar Room of Industrial Engineering Major of ITB. I went there for the duty, because all of the participants of Financial Engineering class must join the class. I got several knowledge about commodity derivatives, that maybe useful for me or you just to be a topic of conversation with someone who works in business and finance. Or, maybe,  You will be the one of a businessman on finance, next time? Who knows? If you are interested in that one.


The keynote speaker is Andri Dian Prihutomo, alumnus of Industrial Engineering who works in Singapore in Finance Major (I don’t know the details of his works) but, he has finished his Master Degree in NTU, Singapore, in Financial Engineering majoring.

Let’s start about the topic. The topic is “Commodity Derivatives in Business Practice”. The history is started from Ancient Sumerian, in Indonesia, it is called “Pengijon”. Pengijon is a person who buy a commodity or stuffs which haven’t mature yet, by the fixed price. In Indonesia, pengijon has a bad reputation because pengijon in Indonesia is usually use monopoly system. If it’s not in a monopoly system, maybe pengijon will get a good reputation. Then, the history continue to the first commodity exchange, Collapse of Bretton Woods System for currency valuation (1971), first oil crisis (1973), energy crisis (1979), wars, disaster, and global warming. Those contributed the style and model of commodity derivatives.

What is derivative?
It is a financial instrument whose value depends to the changes in one or more underlying variables. Future/Forward contract is included a derivatives, but equity is not included.

Why people use a derivative?
– to reduce a risk, or it is related to risk management
– for speculative purpose
– in some cases, it is cheaper than composing its structure from native products.

What kinds of derivative types?
They are Forward, Future, Swaps, Option, and Exotic Product.

The type of commodity derivatives?
They are energy (oil, gas, coil), base metal (iron, gold, silver, alummunium), precious, freight, and weather.

In case study, There are five cases, they are:
Nimex crude Oil Future, Gold Physical Spot and Forward, Option and Forward strategies, refinery swap, and others.

The topic of this stadium generale is really good, but unfortunately there are many keywords that I didn’t know and understand before. But, one thing that I want to share with you, people will have an instinc to save their investation by buying some derivatives of financial engineering. They can buy option, forward, swap, or a premi of insurance. By doing that, they will feel safe. A financial producer will get some profits from the premi…. so, there will be a new job, especially in Indonesia, that there are only few people who work in that job.

The stadium generale has finished in 2 hours at 12am. Thanks.

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