We analyze how the introduction of probability distortion and loss aversion in the standard hedging problem changes the optimal hedge ratio. Based on simulated cash and futures prices for soybeans, our results indicate that the optimal hedge changes considerably when probability distortion is...

The storage at a loss paradox of positive inventories despite inadequate spot-futures price spread coverage of storage costs is an unresolved issue of long-standing interest to economists. Alternative explanations include risk premiums for futures market speculators, convenience yields from...