ABSTRACT
This chapter discusses the key characteristics of metal price series and set the scene with regard to the risk implied by price movements. As most commodities, metal prices tend to be considerably volatile in comparison to other asset classes, such as equities and bonds, although probably less volatile than some energy commodities. Modelling the price processes for metals and other commodities has attracted considerable attention in academic literature. There are several types of participants in the metal derivative markets. They may be producers and consumers of the various metals, as well as transformers and traders. Prices for a commodity between markets and across time may occasionally be out of balance. Arbitrageurs are those who seek such imbalances and act quickly to take advantage of such mispricing opportunities in order to make riskless profits. In contrast to the bilateral transacting model of the forward market, a futures market brings all transactions under the umbrella of the exchange.
