Reference no: EM132764585

Then create time series of the company sales, whereby you use a) the assumption of non-correlated commodity proces and sales,  which would in real life reflect situation of fixed negotiated sales contracts with buyers (that means that in all simulated scenarios sales will amount to USD 650 mln); and b) assumption of correlation coefficient of 0.8 to the selected commodity, which would in real life reflect situation where some commodity price pass-through to buyers is possible - please note that simulated sales will not all the time be USD 650 mln (hint: consult literature about how to create correlated time-series ).

Hint: Starting from commodity price, finding a time series of sales is just the opposite as in real life, where one starts from sales and then studies the relationship between sales and costs of materials. Under b), make also assumption that correlation coefficient is 0.9 (not only 0.8).