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Commodity futures and options

In: Handbook of Agricultural Economics

  • Williams, Jeffrey C.

Organized exchanges have evolved methods for enforcing contracts, which allow the contracts themselves to be traded at low cost. Theorists have modeled futures contracts as tools for risk management, despite an extensive empirical literature that does not support predictions about bias in prices or speculators' behavior. Another perspective models commercial firms as using futures contracts to arbitrage, to minimize transaction costs, to substitute temporarily for merchandising contracts. Because commercial firms tie their processing and storage decisions to the constellation of futures prices, futures prices have major allocative effects, even if their forecasting power is inevitably poor.

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This chapter was published in:
  • B. L. Gardner & G. C. Rausser (ed.), 2001. "Handbook of Agricultural Economics," Handbook of Agricultural Economics, Elsevier, edition 1, volume 1, number 2, 00.
  • This item is provided by Elsevier in its series Handbook of Agricultural Economics with number 2-13.
    Handle: RePEc:eee:hagchp:2-13
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description

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