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Function documentationCommodity Swaps Locate this document in the navigation structure

 

You can calculate the net present value (NPV) of commodity swap deals.

Commodity swaps are similar to interest rate swaps, but the parties exchange a fixed price for a commodity with a floating or a variable price for the commodity.

Commodity swaps can have the following types:

  • Fixed for Floating Swap (Buyer/Receiver)

  • Floating for Floating (Basis) or Location Swap

Note Note

This function is available with the business function TRM, Financial Risk Management for Commodities (FIN_TRM_COMM_RM).

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Features

The NPV is calculated by using market data entered in the commodity curve, the risk free interest rate, and the commodity swap details (quantity and price).

This graphic is explained in the accompanying text.

Activities

To calculate and view the NPV for a commodity swap, choose   Financial Risk Management for Commodities   Accounting   Valuation   TPM60 – Determine Net Present Values   and proceed as follows:

  1. Set the OTC Transactions: MM, Forex, OTC Derivatives indicator in the Product Groups section.

  2. Choose a product type for commodity swaps.

  3. Enter any further selection criteria that you need, such as company code or transaction type.

  4. Select your evaluation parameters. Enter the currency and the relevant evaluation type.

  5. Choose Execute.

  6. A list of NPVs that meet your selection criteria is displayed.

Note Note

You can also calculate NPVs by entering the commodity swap characteristics in the NPV Analysis screen:   Financial Risk Management for Commodities   Analytics   Mark-to-Market & Sensitivities   JBRX – NPV Analysis  .

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Example

Company A has agreed a fixed price for 1000 KG of a commodity at EUR 4.50 per KG. Company B has agreed the floating price. The swap has an agreed settlement date 6 months from now. The market data in the commodity curve shows that, on the settlement date, the price of the commodity will be EUR 5.

The risk free interest rate available is 4%. The risk free expected value for Company A is therefore EUR 4590. The risk free expected value for Company B is EUR 5100.

The total swap NPV is EUR 490.20.

More Information

For more information, see Commodity Swaps.