Perfect Cross-Hedging Opportunities Via Formula Pricing: The Case Of The Broiler Industry
AbstractOne supplier of broilers without giblets (WOGs) offers customers a choice between paying Urner Barry's WOG quote or a formula price based on futures prices. From a buyer's perspective, the formula price is second-degree stochastic dominant, thus acting a marketing inducement. The formula price allows the seller to set almost perfect cross-hedges of WOGs with corn and soymeal. Stochastic dominance results suggested that the seller's dominant strategy would shift from the unhedged Urner Barry quote to the unhedged formula price as risk aversion increased. The hedged formula price was prominent in optimal portfolios of pricing strategies.
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Bibliographic InfoPaper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2000 Annual meeting, July 30-August 2, Tampa, FL with number 21765.
Date of creation: 2000
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Demand and Price Analysis; Livestock Production/Industries; Marketing;
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