Buffer Stocks, Hedging and Risk Reduction

Christopher L Gilbert

Bulletin of Economic Research, 1988, vol. 40, issue 4, 271-86

Abstract: There is a close correspondence between buffer stock stabilization of primary commodity prices and hedging strategies using futures or options markets. In particular, bandwidth stabilization, employed in most buffer stock agreements, closely resembles the strategy obtained by purchasing a put option and writing a call option at prices symmetrically below and above the central price. This suggests that the choice between hedging and stabilization should depend less on th e properties of hedged and stabilized revenues under ideal conditions than on the implications of departures from these conditions. Copyright 1988 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1988
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