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The Use of Mean-Variance for Commodity Futures and Options Hedging Decisions
- Source :
- Journal of Agricultural and Resource Economics, Vol 19, Iss 1, Pp 32-45 (1994)
- Publication Year :
- 1994
- Publisher :
- Western Agricultural Economics Association, 1994.
-
Abstract
- This study provides additional evidence of the usefulness of mean-variance procedures in the presence of options which can truncate and skew the returns distribution. Using a simulation analysis, price hedging decisions are examined for hog producers when options are available. Mean-variance results are contrasted with optimal decisions based on negative exponential and Cox-Rubinstein utility functions over 56 ending price scenarios and two levels of risk aversion. The findings from our simulation, which considers discrete contracts, basis risk, lognormality in prices, transactions costs, and alternative utility specifications, affirm the usefulness of mean-variance framework.
- Subjects :
- discrete contracts
hedging
mean-variance
utility specifications
Agriculture
Subjects
Details
- Language :
- English
- ISSN :
- 10685502 and 23278285
- Volume :
- 19
- Issue :
- 1
- Database :
- Directory of Open Access Journals
- Journal :
- Journal of Agricultural and Resource Economics
- Publication Type :
- Academic Journal
- Accession number :
- edsdoj.39f5ac12c4cb4eaa8192f7f19f430d2f
- Document Type :
- article
- Full Text :
- https://doi.org/10.22004/ag.econ.31230