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Subsidized Options in a Thin Market: A Case Study of the Dairy Options Pilot Program Introduction

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  • David Buschena
  • Kevin McNew
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    Abstract

    We explore how a thin market responds to a subsidized put option program. The United States Department of Agriculture initiated the Dairy Options Pilot Program in 1999 in an effort to provide dairy producers with real-world experiences trading options. The volume from this program represented a large share of total trades.Our empirical analysis shows that Dairy Options Pilot Program trades occurred at statistically significantly high prices, Dairy Options Pilot Program volume had a price-reducing effect on other options trades, and some brokers filled Dairy Options Pilot Program orders at relatively high prices. We also find that these brokers appear to be providing acceptable service to their producer clients. Copyright 2008, Oxford University Press.

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    File URL: http://hdl.handle.net/10.1111/j.1467-9353.2007.00394.x
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    Bibliographic Info

    Article provided by Agricultural and Applied Economics Association in its journal Review of Agricultural Economics.

    Volume (Year): 30 (2008)
    Issue (Month): 1 ()
    Pages: 103-119

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    Handle: RePEc:oup:revage:v:30:y:2008:i:1:p:103-119

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