Hedging Production Risk with Options

Yong Sakong, Dermot Hayes and Arne Hallam ()

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

Abstract: The expected utility maximization problem is solved for producers with both price and production uncertainty who have access to both futures and options markets. Introduction of production uncertainty alters the optimal futures and options position and almost always makes it optimal for the producer to purchase put options and to underhedge on the futures market. Simulation results lend support to the practice of hedging the minimum expected yield on the futures market and hedging remaining expected production against downside price risk using put options. The results are strengthened if the producer expects local production to influence national prices and if risk aversion is higher at low income levels.

Date: 1993-05-01
References: Add references at CitEc
Citations: View citations in EconPapers (21)

Published in American Journal of Agricultural Economics, May 1993, vol. 75 no. 2, pp. 408-415

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

Related works:
Journal Article: Hedging Production Risk With Options (1993)
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:559

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 ().