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Agricultural Production Decision using Jumps and Seasonal Volatility in commodities prices dynamics

Author

Listed:
  • Zoulkiflou Moumouni

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

  • Jules Sadefo-Kamdem

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

Abstract

We use agricultural commodities futures prices to investigate decision making in production when futures prices are governed by jump-diffusion process with seasonal volatility. We derive a preference independent production rule for firms that face both demand and production uncertainty. We compare this rule to the one when only Brownian motion represents the source of risk with constant volatility. Our analysis suggests that for most crops, the jump-diffusion model is sufficiently accurate to guide production decision.

Suggested Citation

  • Zoulkiflou Moumouni & Jules Sadefo-Kamdem, 2020. "Agricultural Production Decision using Jumps and Seasonal Volatility in commodities prices dynamics," Working Papers hal-02465046, HAL.
    • Handle: RePEc:hal:wpaper:hal-02465046
    Note: View the original document on HAL open archive server: https://hal.umontpellier.fr/hal-02465046
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    File URL: https://hal.umontpellier.fr/hal-02465046/document
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    More about this item

    Keywords

    Production decision; futures markets; jump-diffusion; incomplete markets; options pricing; seasonal volatility; agricultural commodities; seasonal volatility JEL Codes: C12; C58; D52; G13; Q11; Q14;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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