Hedging Role of Options and Futures Under Joint Price, Basis and Production Risk, The

GianCarlo Moschini and Harvey Lapan

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper analyzes the optimal production and hedging decisions for firms facing futures price, basis and production risk, assuming futures and options can be used. Using CARA (constant absolute risk aversion) utility and normal distributions, we derive an exact solution and show that joint production and price risk lead to a hedging role for options. Risk averse firms that can use each hedging instrument will generally have higher (expected) output. Using Iowa data for soybeans, the parameters of the joint distribution of future prices, cash prices and yields are estimated and the results are used to approximate optimal hedging decisions for soybean producers.

Date: 1995-11-01
References: Add references at CitEc
Citations: View citations in EconPapers (58)

Published in International Economic Review, November 1995, vol. 36 no. 4, pp. 1025-1049

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: The Hedging Role of Options and Futures under Joint Price, Basis, and Production Risk (1995)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:5137

Access Statistics for this paper

More papers in Staff General Research Papers Archive from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC.
Bibliographic data for series maintained by Curtis Balmer (econwebmaster@iastate.edu).