Commodity average-price swap
Exchange a fixed price against the arithmetic average of commodity prices over a contractual observation period.
How it works
This swap spreads the price reference across several fixing days instead of relying on one final observation. The floating reference can be an organization quote or one selected listed Future. Each open day in the chosen fixing calendar has equal weight in the average.
Key contract terms
- Purchase or sale and total quantity
- Fixed price and optional floating-side differential
- Organization quote or exact listed Future
- Averaging start and end dates
- Fixing calendar, currency and commodity unit
Payoff: the contractual result
For a purchase, payoff is quantity × (average price + differential − fixed price). A sale reverses the sign. Before the period ends, exact known fixings are combined with a flat projection of the remaining observations, then discounted to period end.
A simple example
A buyer holds 100 units at a fixed EUR 200, with no differential. Three final observations of EUR 190, 210 and 230 average EUR 210. The final payoff is 100 × (210 − 200) = EUR 1,000; the seller has EUR −1,000.
Illustrative amounts exclude fees and currency conversion. A payoff is distinct from the instrument's value before maturity.
Lifecycle
- Contract created
- Successive price observations
- Complete contractual average
- Final result once data is confirmed
- Create the averaging period, fixing calendar, total quantity and fixed price.
- Successive price observations build the arithmetic average. Each observation is an input to one contract, not a partial fixing action that creates another position.
- Historical observations must be available; remaining dates stay projected. The first observed price does not close part of the swap or realize a separate daily payoff.
- At the end of the averaging period, the complete required average determines the final contract result. Finalization remains pending if a required exact observation is missing.
Using this instrument in OTCValue
The selected Future must not expire before averaging ends. Missing required exact observations block valuation; the current quote does not replace a past fixing. This model uses one averaging period and no separate payment date. Realized P&L is a valuation classification, not a payment record.