Document Type

Conference Proceeding

Conference

2011 AAEA & NAREA Joint Annual Meeting

Publication Date

7-2011

Conference Date

July 24–26, 2011

City

Pittsburgh, PA

Abstract

The utility maximization problem of a grain producer is formulated and solved numerically under prospect theory as an alternative to expected utility theory. Conventional theory posits that the optimal hedging position of a producer should not increase solely due to increases in the level of futures prices. However, a strong degree of positive correlation is apparent in the data. Our results show that with prospect theory serving as the underlying behavioral framework, the optimal hedge of a producer is affected by changes in futures price levels. The implications of this price-induced hedging behavior on spot prices and volatility are subsequently considered.

Rights

Copyright 2011 by Kauffman, Hayes, and Lence. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies

Copyright Owner

Kauffman, Hayes, and Lence

Language

en

File Format

application/pdf

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Article Location

 
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