Campus Units

Economics

Document Type

Article

Publication Version

Published Version

Publication Date

1996

Journal or Book Title

Journal of Agricultural and Resource Economics

Volume

21

Issue

1

First Page or Article ID Number

39

Last Page

55

Abstract

The most important minimum-variance hedge-ratio assumptions are (a) that production is deterministic and (b) that all of the agent's wealth is invested in the cash position. Stochastic production greatly reduces optimal hedge ratios. An alternative investment greatly reduces opportunity costs of not hedging by "diluting" the cash position. Stochastic production and/or alternative investments render the costs associated with hedging relatively more important, yielding almost negligible net benefits of hedging. Hence, hedging costs typically dismissed in hedging models for being seemingly negligible are important determinants of hedging behavior.

Comments

This article is from Journal of Agricultural and Resource Economics 21 (1996): 39. Posted with permission.

Copyright Owner

Western Agricultural Economics Association

Language

en

File Format

application/pdf

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