THE USE OF MEAN-VARIANCE FOR COMMODITY FUTURES AND OPTIONS HEDGING DECISIONS

Philip Garcia, Brian Adam and Robert J. Hauser

Journal of Agricultural and Resource Economics, 1994, vol. 19, issue 01, 14

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.

Keywords: Marketing (search for similar items in EconPapers)
Date: 1994
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlaare:31230

DOI: 10.22004/ag.econ.31230

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