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A Simple Multiperiod Minimum Risk Hedge Model
Author(s) -
Mathews Kenneth H.,
Holthausen Duncan M.
Publication year - 1991
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242429
Subject(s) - hedge , simple (philosophy) , econometrics , variance (accounting) , economics , profit (economics) , mathematics , risk model , microeconomics , ecology , philosophy , accounting , epistemology , biology
A multiperiod hedging model is developed that is simpler than other multiperiod models in the literature. The model permits periodic adjustment of the hedge while minimizing the producer's profit variance. Minimum risk hedge ratios are calculated for steers, cows, hogs, com, and soybeans using the full model with hedge adjustments every two months. These ratios are compared to those using the model without periodic hedge adjustments and to a simple single‐period model. The results suggest that simple models may work well for simple hedges, while the full model is best for more complex hedging situations such as cross hedges.