RESOURCES / SOLUTION SPOTLIGHT
m3RISKTM HEDGING & PRICING TOOL
Commodity prices have been experiencing unprecedented levels of volatility in recent times – volatility of agricultural commodities such as wheat and soybean oil have increased by 70-100% in 2008-09 compared to previous years! Effective management of commodity risk is now a priority for procurement and sourcing offices across most major food companies.
Hedging is increasingly emerging as a powerful approach to manage commodity price risk. It involves the use of commodity derivative instruments such as futures & options to offset the impact of extreme movements in prices of raw material on procurement costs.
LatentView’s m3RiskTM is a software solution that enables effective commodity risk management, by coming up with optimal hedging recommendations based on your raw material procurement plans.
What is m3RiskTM?
m3riskTM can help you:
How does m3RiskTM work?
m3RiskTM adopts a 5-step approach to generate hedge recommendations, which involve:
Features of m3RiskTM
Value of m3RiskTM
M3RiskTM facilitates an objective, quantitative, data-driven hedging strategy to manage commodity price fluctuations, ensuring greater predictability of procurement costs and enabling food companies successfully steer ahead through volatile commodity markets.
m3RISKTM HEDGING & PRICING TOOL
Commodity prices have been experiencing unprecedented levels of volatility in recent times – volatility of agricultural commodities such as wheat and soybean oil have increased by 70-100% in 2008-09 compared to previous years! Effective management of commodity risk is now a priority for procurement and sourcing offices across most major food companies.
Hedging is increasingly emerging as a powerful approach to manage commodity price risk. It involves the use of commodity derivative instruments such as futures & options to offset the impact of extreme movements in prices of raw material on procurement costs.
LatentView’s m3RiskTM is a software solution that enables effective commodity risk management, by coming up with optimal hedging recommendations based on your raw material procurement plans.
What is m3RiskTM?
m3riskTM can help you:
Map Risk: Identify the different sources of commodity risk, based on your raw material procurement patterns, and quantify your exposure to each of these sources
Measure Risk: Assess the magnitude of risk you are exposed to, based on predicted future prices of various raw material prices
Mitigate Risk: Effectively manage risk by choosing the right hedge instruments and constructing optimal hedge portfolios.
How does m3RiskTM work?
m3RiskTM adopts a 5-step approach to generate hedge recommendations, which involve:
Exposure Determination: Exposure across different price indices for each raw material is derived from RM procurement plans, based on an analysis of pricing patterns of past RM procurements
Price Distribution Prediction: Sophisticated predictive models used to predict future price distributions, for each price index to which it is exposed
Risk Quantification: Risk is quantified as a function of exposure quantity and price volatility, for each price index over time
Hedge Instruments Selection: Best hedge instruments are chosen for each price index, from the available pool, based on correlation with price indices and other filters
Optimal Hedge Recommendations: Sophisticated optimization algorithms used to generate recommendations on optimal hedge quantity across chosen hedge instruments
Features of m3RiskTM
Cutting-edge analytical models to predict price distributions and generate optimal hedge recommendations
Flexibility to choose from a variety of different hedging objectives (pure risk minimization, risk vs. cost tradeoff optimization, etc) to address different business priorities
Extensive scenario analysis capabilities, enabling user to test efficacy of various hedging alternatives
Completely customizable, as per clients’ internal Risk Management practices & policies
Modular Architecture, ensuring easy integration with existing Risk Management & Procurement systems
Value of m3RiskTM
M3RiskTM facilitates an objective, quantitative, data-driven hedging strategy to manage commodity price fluctuations, ensuring greater predictability of procurement costs and enabling food companies successfully steer ahead through volatile commodity markets.
