Derivatives on Regional Commodity Exchanges

Abstract

Classic commodity derivatives, i.e. futures, forward and options contracts have been in existence for a long time. However, 1970s have become a kind of turning point in evolution of derivatives applications as well as in financial engineering, too. At that time standard options pricing models were carried out and options were introduced to organised exchanges. Basics for a future market of exotic options were forming simultaneously. Exotics are the options that regard individual preferences of investors. In the next years the assortment of exotic options has been consequently evolving and investors started to notice possible benefits connected with their employment. The most important of the benefits are: a lower price and non-standard character. Very often exotic options are relatively inexpensive when compared to a linear combination of vanilla options. They are also very flexible. This means that if an instrument satisfying investors’ needs does not exist, it can always be “financially engineered”. That is not always possible when using only standard options. In the world, exotic options are generally traded on over-the-counter markets, although in the United States the most standard of exotics: barrier and lookback options have been introduced also to formal markets. In 1990 in Poland in consequence of political changes some commodity exchanges were founded. At the beginning, only cash transactions took place on all AESTIMUM 43, dicembre 2003: 25-32