Live and Feeder Cattle Options Markets: Returns, Risk, and Volatility Forecasting
AbstractThis paper examines returns from holding 30- and 90-day call and put positions, and the forecasting performance of implied volatility in the live and feeder cattle options markets. Implied volatility is an upwardly biased and inefficient predictor of realized volatility, with bias most pronounced in live cattle. While significant returns exist from several positions, strategies are strongly affected by drifts in futures prices. However, returns from live cattle puts are persistent, and evidence from 30-day straddle returns indicates the live cattle market overprices volatility. Overpricing is consistent with volatility risk, the effect of which is magnified by extreme market conditions.
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Bibliographic InfoArticle provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.
Volume (Year): 36 (2011)
Issue (Month): 1 (April)
feeder cattle; live cattle; options; returns; risk; volatility forecasting; Livestock Production/Industries; Risk and Uncertainty;
Other versions of this item:
- Brittain, Lee & Garcia, Philip & Irwin, Scott H., 2009. "Live and Feeder Cattle Options Markets: Returns, Risk, and Volatility Forecasting," 2009 Conference, April 20-21, 2009, St. Louis, Missouri, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management 53038, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Egelkraut, Thorsten M. & Garcia, Philip, 2006. "Intermediate Volatility Forecasts Using Implied Forward Volatility: The Performance of Selected Agricultural Commodity Options," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 31(03), December.
- Isengildina, Olga & Irwin, Scott H. & Good, Darrel L., 2005.
"The Value of USDA Situation and Outlook Information in Hog and Cattle Markets,"
2005 Conference, April 18-19, 2005, St. Louis, Missouri, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management
19050, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
- Good, Darrel L. & Irwin, Scott H. & Isengildina, Olga, 2006. "The Value of USDA Situation and Outlook Information in Hog and Cattle Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, Western Agricultural Economics Association, vol. 31(02), August.
- Andrew McKenzie & Michael Thomsen & Josh Phelan, 2007. "How do you straddle hogs and pigs? Ask the Greeks!," Applied Financial Economics, Taylor & Francis Journals, vol. 17(7), pages 511-520.
- Yanhong H. Jin & Gabriel J. Power & Levan Elbakidze, 2008. "The Impact of North American BSE Events on Live Cattle Futures Prices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 90(5), pages 1279-1286.
- Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2012. "Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases with Application to Rating Livestock Margin Insurance for Dairy Cattle," Staff Papers, University of Minnesota, Department of Applied Economics 135077, University of Minnesota, Department of Applied Economics.
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