Optimism and pessimism in commodity price hedging

Jonathan Tuthill

European Review of Agricultural Economics, 2004, vol. 31, issue 3, 289-307

Abstract: Rank dependent utility is used to model the use of corn futures and options on corn futures for a corn buyer. Optimal futures and options positions are numerically calculated by maximising rank dependent utility for a variety of cases. The cases represent three different types of agents--pessimists, strong optimists and weak optimists--for several levels of risk aversion, with and without transactions costs. Whether or not an agent trades as a speculator or a hedger is found to depend on his level of optimism or pessimism, risk aversion and transactions costs. Copyright 2004, Oxford University Press.

Date: 2004
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European Review of Agricultural Economics is currently edited by Timothy Richards, Salvatore Di Falco, Céline Nauges and Vincenzina Caputo

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