AGRICULTURAL FINANCE REVENUE FUTURES CONTRACT

2004 ◽  
Vol 07 (02) ◽  
pp. 85-99 ◽  
Author(s):  
MARTIAL V. GUINVARC'H ◽  
JACQUES JANSSEN ◽  
JEAN E. CORDIER
Keyword(s):  
Risk Management ◽  
Crop Yield ◽  
Management Strategy ◽  
Financial Intermediation ◽  
Futures Contracts ◽  
Financial Intermediary ◽  
Agricultural Finance ◽  
Futures Contract ◽  
Put Option

To respond to financial compound risk of farmers, two multiplicative derivative contracts, called respectively revenue futures contract and revenue put option, are proposed. The paper presents the theoretical management strategy of such a contract under the constraint that price and crop yield futures contracts are quoted. A financial intermediary can thus develop a risk-free management strategy to build a revenue futures contract. This paper opens perspectives on risk management for farmers, on completeness of markets and on new financial intermediation.

scholarly journals Hedging Urea for Forestry Applications in the US South

2006 ◽  
Vol 30 (3) ◽  
pp. 142-146 ◽  
Author(s):  
Brooks C. Mendell
Keyword(s):  
Management Strategy ◽  
Futures Contracts ◽  
Price Risk ◽  
Risk Management Strategy ◽  
Us South ◽  
Futures Contract ◽  
The Us ◽  
Time Frames ◽  
Out Of Pocket Costs

Abstract This article introduces hedging with futures contracts as a risk management strategy in forestry. It tests and indicates the feasibility of using newly available urea futures contracts traded on the Chicago Mercantile Exchange to hedge urea, the most common nitrogen fertilizer usedin forest management. A significant direct price movement relationship exists between urea cash prices and urea futures. In detailing how to implement this hedge, net realized urea prices are calculated for two fertilization seasons for the US South in 2004 and 2005. Both hedges reduce thegap between expected costs and actual out-of-pocket costs relative to unhedged urea purchases. These results suggest that urea futures contracts can effectively reduce price risk, defined as unexpected price changes, for forestry applications. The newness of the urea futures contract, whichbegan trading in May 2004, limits the ability to assess the long-term impacts on the SD of net realized cash costs for urea over longer time frames. South. J. Appl. For. 30(3):142–146.

scholarly journals Stochastic Dominance Analysis of Futures and Option Strategies for Hedging Feeder Cattle

1998 ◽  
Vol 27 (2) ◽  
pp. 270-280 ◽  
Author(s):  
R. Wes Harrison
Keyword(s):  
United States ◽  
Stochastic Dominance ◽  
The United States ◽  
Futures Contracts ◽  
Risk Averse ◽  
Feeder Cattle ◽  
Futures Contract ◽  
Risk Return ◽  
Put Option ◽  
Option Strategies

Stochastic simulation and generalized stochastic dominance are used to compare the risk-return properties of the Chicago Mercantile Exchange feeder cattle futures contract with those of the feeder cattle put option contract. Cash marketing, futures, and option strategies are analyzed for four backgrounding systems common to the mid-south region of the United States. The results show that at-the-money put option strategies dominate corresponding futures contract strategies according to generalized stochastic dominance. This implies that at-the-money put option contracts are superior to feeder cattle futures contracts for risk-averse backgrounders in the mid-south region of the United States.

scholarly journals Cost-Effective Portfolio Hedging: A Dividend-funded Derivative Approach

2021 ◽  
Vol 3 (3) ◽  
pp. p8
Author(s):  
Jeff Casucci ◽  
Price Nimmich ◽  
Patrick Stanton ◽  
Philip Swicegood
Keyword(s):  
Risk Management ◽  
Risk Reduction ◽  
Management Strategy ◽  
Cost Effective ◽  
Dividend Yield ◽  
Risk Management Strategy ◽  
Risk And Return ◽  
Trade Off ◽  
Put Option ◽  
Overall Risk

This paper examines the effectiveness of using dividend yield to fund hedging protection for an S&P500 equity portfolio. We construct a hedged portfolio that consists of the S&P500 index but uses the dividend yield to purchase put option protection for hedging risk. We then compare the risk and return of the hedged S&P500 portfolio to that of an unhedged S&P500 portfolio. The trade-off reduced returns compared to the overall risk reduction are also measured. Results indicate that this risk-management strategy could be appealing to a large contingency of investors seeking down-side protection at a modest cost that is self-funded from dividends.

EFFECTIVE CROSS HEDGING: EVIDENCE FROM PHYSICAL CRUDE PALM OIL AND ITS INTER-RELATED AGRICULTURAL FUTURES CONTRACTS

2018 ◽  
Vol 17 (2) ◽  
pp. 123
Author(s):  
Noryati Ahmad ◽  
Ahmad Danial Zainudin ◽  
Fahmi Abdul Rahim ◽  
Catherine S F Ho
Keyword(s):  
Palm Oil ◽  
Futures Contracts ◽  
Crude Palm Oil ◽  
Oil Futures ◽  
Futures Contract ◽  
Agricultural Futures ◽  
Cross Hedging ◽  
Optimal Hedge ◽  
Excessive Speculation ◽  
Chicago Board Of Trade

Since its establishment, Crude Palm Oil futures contract (FCPO) has been used to directly hedge its physical crude palm oil (CPO). However, due to the excessive speculation activities on crude palm oil futures market, it has been said to be no longer an effective hedging tool to mitigate the price risk of its underlying physical market. This triggers the need for market players to find possible alternatives to ensure that the hedging role can be executed effectively. Thus this investigation attempts to examine whether other inter-related grains and oil seed futures contracts could serve as effective cross-hedging mechanisms for the CPO. Weekly data of inter-related futures contracts from Chicago Board of Trade (CBOT) and Dalian Commodity Exchange (DCE) are employed to cross hedge the physical crude palm oil prices. The study starts from 2006 until 2016. Empirical results indicate that FCPO is still the best futures contract for hedging purposes while Chicago Soybean (CBOTBO) provides second best alternative if cross-hedging is considered. Keywords: Crude palm oil, Crude palm oil futures, Cross Hedging, Optimal Hedge Ratio, Effective Hedging

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