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On the Pricing of Cross Currency Futures Options for Canadian Grains and Livestock

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  • Calum G. Turvey
  • Shihong Yin

Abstract

This paper explores the problem of pricing an option on the cash commodity in Canadian dollars when the commodity is priced relative to a U.S. futures market. A general options pricing model is developed that separates out the value of a quantos risk and basis risk. The paper uses daily data for cattle, corn and soybeans in Ontario, and the model is employed to price the option on the cash commodity with basis risk and the option on a quantos, without basis risk. The relationship between the pricing model and over-the-counter options and market revenue insurance is also discussed.
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Suggested Citation

  • Calum G. Turvey & Shihong Yin, 2002. "On the Pricing of Cross Currency Futures Options for Canadian Grains and Livestock," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 50(3), pages 317-332, November.
    • Handle: RePEc:bla:canjag:v:50:y:2002:i:3:p:317-332
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    File URL: http://hdl.handle.net/10.1111/j.1744-7976.2002.tb00340.x
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    Cited by:

    1. Turvey, Calum G., 2003. "Conceptual Issues In Livestock Insurance," Research Reports 18171, Rutgers University, Food Policy Institute.
    2. Calum G. Turvey, 2010. "Biography," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 70(1), pages 5-20, May.

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