This book was born out of two sets of courses that we were lucky to be able to conduct for quite a long time for very enthusiastic students. The first set of courses were meant for – and are still intended for – engineering students, most of whom do not work in the field of commodities but who still wish to understand the fundamental principles underlying the working of these markets. The second set of courses is meant for students of economics and engineering students who are specializing further, following their initial training, with a masters in economics of the environment, energy and transport.

The book that has resulted from these two sets of courses is, in fact, a summary that has been hugely augmented by the additional course material that we gradually developed. It consists of a very descriptive set of materials that aim to present the basic mechanisms of the financial commodity markets: forward markets, call options and swaps markets. These fundamental mechanisms are not very difficult to understand, however they still require a certain amount of effort in order for the reader to become familiar with them. Although we resort to a few simplifications, we present all the elements that are essential for a rigorous comprehension of the subject; in this sense, the book presents no impasse, and thus, the reader who has assimilated all the information we present can understand how the financial commodity markets function.

This book is also, partly, a work on economic theory. Our aim was to show how economists use conceptual frameworks that they find familiar to represent and analyze these markets. On first reading, a reader who is unfamiliar with the theory may find it a little difficult to understand the analytical scope of these conceptual approaches. We are, nonetheless, convinced that the analytical frameworks used by economists are essential for shedding light on the subject. Similarly, some developments in financial mathematics are also presented as certain aspects of the functioning of the financial markets cannot be approached with any rigor without using the mathematical instruments on which they were founded, both theoretically and empirically.

We have chosen to give as simple an explanation of the subject as possible, but have also retained all that is essential to an authentic comprehension of the financial commodity markets. Consequently, certain passages in this book may at first seem difficult, but these few arduous explanations are not gratuitously inserted for denseness. They represent certain inevitable examples. If the reader who takes up this book feels the need for specific motivation, it would be good to remind them that – essentially – knowledge of the financial commodity markets in fact represents an advanced step toward a comprehension of all financial markets.

Joël PRIOLON

October 2018