The Design And Pricing Of Fixed And Moving Window Contracts: An Application Of Asian-Basket Option Pricing Methods To The Hog Finishing Sector
Asian-Basket type moving window contracts are an increasingly used risk management tool in US 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 breakeven 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 one-year duration.
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