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Stochastic Dominance Analysis Of Futures And Option Strategies For Hedging Feeder Cattle

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  • Harrison, R. Wes

Abstract

Stochastic simulation and generalized stochastic dominance are used to compare the risk-return properties of the Chicago Mercantile Exchange feeder cattle futures contract with those of the feeder cattle put option contract. Cash marketing, futures, and option strategies are analyzed for four backgrounding systems common to the mid-south region of the United States. The results show that at-the-money put option strategies dominate corresponding futures contract strategies according to generalized stochastic dominance. This implies that at-the-money put option contracts are superior to feeder cattle futures contracts for risk-averse backgrounders in the mid-south region of the United States.

Suggested Citation

  • Harrison, R. Wes, 1998. "Stochastic Dominance Analysis Of Futures And Option Strategies For Hedging Feeder Cattle," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 27(2), pages 1-11, October.
    • Handle: RePEc:ags:arerjl:31533
    DOI: 10.22004/ag.econ.31533
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    14. Bradford, Garnett L. & Boling, James A. & Rutledge, Stephen R. & Moss, Terry W., 1978. "Comparing Management Systems for Beef Cattle Backgrounding: A Multidisciplinary Approach," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 10(2), pages 57-62, December.
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    16. O'Bryan, Stephen L. & Bobst, Barry W. & Davis, Joe T., 1977. "Factors Affecting Efficiency of Feeder Cattle Hedging in Kentucky," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 9(1), pages 185-189, July.
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    2. Ritchie, John W. & Abawi, G. Yahya & Dutta, Sunil C. & Harris, Trevor R. & Bange, Michael, 2004. "Risk management strategies using seasonal climate forecasting in irrigated cotton production: a tale of stochastic dominance," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(1), pages 1-29.

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