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

Published online by Cambridge University Press:  15 September 2016

R. Wes Harrison
R. Wes Harrison*
Affiliation:
Department of Agricultural Economics & Agribusiness, Louisiana State University
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Abstract

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.

Type
Articles
Information
Agricultural and Resource Economics Review , Volume 27 , Issue 2 , October 1998 , pp. 270 - 280
Copyright
Copyright © 1998 Northeastern Agricultural and Resource Economics Association 

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