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The design and pricing of fixed‐ and moving‐window contracts: An application of Asian‐Basket option pricing methods to the hog‐finishing sector

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  • Renyuan Shao
  • Brian Roe

Abstract

Asian‐Basket‐type moving‐window contracts are an increasingly used risk‐management tool in the North American hog sector. The moving‐window contract is decomposed into a portfolio of a long Asian‐Basket put and a short Asian‐Basket call option. A projected break‐even price is used to determine the floor price, and then Monte Carlo simulation methods are used to price both a moving‐ and a fixed‐window contract. These methods provide unbiased pricing of fixed‐ and moving‐window hog‐finishing contracts of 1‐year duration. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:1047–1073, 2003

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  • Renyuan Shao & Brian Roe, 2003. "The design and pricing of fixed‐ and moving‐window contracts: An application of Asian‐Basket option pricing methods to the hog‐finishing sector," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(11), pages 1047-1073, November.
    • Handle: RePEc:wly:jfutmk:v:23:y:2003:i:11:p:1047-1073
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    Cited by:

    1. Martial Phélippé-Guinvarc’H & Jean Cordier, 2010. "An option on the average European futures prices for an efficient hog producer risk management," Review of Agricultural and Environmental Studies - Revue d'Etudes en Agriculture et Environnement, INRA Department of Economics, vol. 91(1), pages 27-42.
    2. Lien, Donald & Hennessy, David A., 2005. "Evaluating the Saskatchewan Short-Term Hog Loan Program," Staff General Research Papers Archive 12254, Iowa State University, Department of Economics.
    3. Glynn Tonsor & Ted Schroeder, 2011. "Multivariate forecasting of a commodity portfolio: application to cattle feeding margins and risk," Applied Economics, Taylor & Francis Journals, vol. 43(11), pages 1329-1339.

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