PRODUCTION, HEDGING, AND SPECULATIVE DECISIONS WITH OPTIONS AND FUTURES MARKETS

Harvey Lapan, GianCarlo Moschini and Steven D. Hanson

No 270980, 1990 Annual meeting, August 5-8, Vancouver, Canada from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: This paper analyzes production, hedging, and speculative decisions when both futures and options can be used in an expected utility model of price and basis uncertainty. When futures and option prices are unbiased optimal hedging requires only futures (options are redundant). Options are used together with futures as speculative tools when market prices are perceived as biased. Straddles are used to speculate on beliefs about price volatility and to hedge the futures position used to speculate on beliefs about the expected value of the futures price. Mean-variance analysis in general is not consistent with expected utility when options are allowed.

Keywords: Demand and Price Analysis; Production Economics; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 27
Date: 1990-08-05
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Related works:
Journal Article: Production, Hedging, and Speculative Decisions with Options and Futures Markets (1991)
Working Paper: Production Hedging and Speculative Decisions with Options and Future Markets (1991)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea90:270980

DOI: 10.22004/ag.econ.270980

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