Configure a Settlement Method

Security Note: You need the Allow the user to maintain markets configuration security right in the Marketing user group security rights group for this activity.

Activity Steps

  1. Open the Market/Commodity Editor.
  2. Select the Settlement Methods tab.
  3. Right-click in the Settlement Methods table and select New from the menu.
  4. Complete the following fields.
    • Name
    • Quotation Period—Select from:
      • Fixed—Quotation period start and end dates are specified for each hedge position.
      • Predefined—Predefined functions based on a time period and dependent on the execution date or another date. See Expression Editor Functions - Quotation Period Category for descriptions. For example:
        • HEDGELKQ(M1): Last known quotation from M1 months prior to the hedge position expiry date
        • MOHE(M1, M2): M1 months after the month of hedge execution + M2 months
      • Calculated—Complex calculations can be entered and tested using the Expression Editor.
    • Options Execution—Date range when options can be executed. Select from:
      • On Declaration Date (default)
      • Up To Declaration Date—Includes executing the option on the declaration date.
    • Price Estimation Model—Model used to estimate the current price of options contracts created for market commodities that use the settlement method. Select from:
      • Black-Scholes
      • Monte Carlo
  5. If the price estimation model is Monte Carlo, enter the Number Of Simulations.
  6. If the options execution is On Declaration Date, to specify that hedge revaluations can execute options contracts that are 'in the money' on the declaration date, check Automatic Execution. An options contract is in the money if:
    • The market price is greater than the exercise price for a buy call option or a sell put option.
    • The exercise price is greater than the market price for a sell call option or a buy put option.

    If checked, an options contract is automatically executed if:

    • A hedge revaluation is run with the same date as the declaration date of the options contract.
    • The settlement created by the hedge revaluation is in the money.
    • The settlement is final.

    If unchecked, hedge revaluations create settlements, but do not execute any options contracts.

    Options contracts can still be executed manually via the Hedging Explorer.

    Default: Unchecked.

  7. Click Save.