A freight forwarder with a fleet of bulk carriers wants to optimize their portfolio in the metals markets with

entry into the nickel business and use of the tramp trade. Tramp ships are the company's "swing" option

without any fixed charter or other constraint. They allow the company flexibility in managing several aspects

of freight uncertainty. They have allocated $250 million to purchase metals. The company wants us to:

1. Retrieve and begin to analyze data about potential commodities to diversify into

2. Compare potential commodities with existing commodities in conventional metals spot markets

3. Begin to generate economic scenarios based on events that may, or may not, materialize in the

commodities

4. The company wants to mitigate their risk by diversifying their cargo loads

Identify the optimal combination of Nickel, Copper, and Aluminium to trade

1. Product: Metals commodities and freight charters

2. Metal, Company, and Geography:

a. Nickel: MMC Norilisk, Russia

b. Copper: Codelco, Chile and MMC Norilisk, Russia

c. Aluminium: Vale, Brasil and Rio Tinto Alcan, Australia

3. Customers: Ship Owners, manufacturers, traders

4. All metals traded on the London Metal Exchange

How much capital would the freight-forwarder need? How do you figure this out? Determine various measures of risk in the tail of each metal's distribution. How is this done? Then figure out a loss function to develop the portfolio of risk, and the determination of risk capital the freight-forwarder might need. Confidence intervals might be used tofa risk management plan with varying tail experience thresholds. Please explain how to calculate.