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Can Options Be Used as a Hedging Instrument?

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Abstract

We develop a portfolio choice model for farmers faced with both price and production uncertainty who can hedge this uncertainty using both options and futures contracts. We then simulate the decision process of a typical Iowa farmer and derive his or her optimal options and futures position.

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  • Yong Sakong & Dermot J. Hayes & Arne Hallam, 1992. "Can Options Be Used as a Hedging Instrument?," Center for Agricultural and Rural Development (CARD) Publications 92-wp85, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:92-wp85
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    1. Appelbaum, Elie & Katz, Eliakim, 1987. "Seeking Rents by Setting Rents: The Political Economy of Rent Seeking," Economic Journal, Royal Economic Society, vol. 97(387), pages 685-699, September.
    2. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    3. Fama, Eugene F & Jensen, Michael C, 1983. "Agency Problems and Residual Claims," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 327-349, June.
    4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    5. Zusman, Pinhas, 1976. "The Incorporation and Measurement of Social Power in Economic Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(2), pages 447-462, June.
    6. Eggertsson,Thrainn, 1990. "Economic Behavior and Institutions," Cambridge Books, Cambridge University Press, number 9780521348911, March.
    7. Kislev, Yoav & Lerman, Zvi & Zusman, Pinhas, 1989. "Credit cooperatives in Israeli agriculture," Policy Research Working Paper Series 156, The World Bank.
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