Profit Margin Hedging

Hyun Kim (), B Brorsen and Kim B. Anderson

American Journal of Agricultural Economics, 2010, vol. 92, issue 3, 638-653

Abstract: Some extension economists and others recommend profit margin hedging as a way to choose the timing of crop sales. However, the theory behind this strategy recommendation is not well developed. This article determines the producer's utility function and price processes where profit margin hedging is optimal. Profit margin hedging is shown to be an optimal strategy under a highly restricted target utility function even in an efficient market. Profit margin hedging is profitable if prices are mean reverting. Copyright 2010, Oxford University Press.

Date: 2010
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Working Paper: Profit Margin Hedging (2007)
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