This paper presents a general method for pricing weather derivatives. Specification tests find that a temperature series for Fresno, California follows a mean-reverting Brownian motion process with discrete jumps and ARCH errors. Based on this process, we define an equilibrium pricing model for...

The informational content in live cattle and hog deferred futures prices is assessed using a direct test of incremental forecast ability for two- to twelve-month horizons. For 1976-2007, the results indicate that hog futures prices add incremental information at all horizons, but unique...

One-step-ahead forecasts of quarterly live cattle, live hog, and broiler prices are evaluated under two general approaches: accuracy-based measures and classification based measures which test the ability to categorize price movements directionally or within a forecasted range. Results suggest...

Agricultural risk managers need forecasts of price volatility that are accurate and meaningful. This is especially true given the greater emphasis on firm level risk measurement and management (e.g., Value-at-Risk and Enterprise Risk Management). Implied volatility is known to provide a readily...

Accurate pricing of weather derivatives is critically dependent upon correct specification of the underlying weather process. We test among six likely alternative processes using maximum likelihood methods and data from the Fresno, CA weather station. Using these data, we find that the best...

One step-ahead forecasts of quarterly live cattle, live hog, and broiler prices are evaluated under two general approaches: accuracy-based measures and the ability to categorize price movements directionally or within a forecasted range. Results suggest USDA price forecasts are not optimal....

Existing derivative pricing methods cannot be used to price weather derivatives due to the absence of a hedgeable commodity underlying weather risk and the complexity of weather processes. This study develops a pricing model that considers weather derivatives to be the same as any other...

The traditional necessary condition for futures market inefficiency is the existence of alternative forecasting methods that produce mean squared forecast errors smaller than the futures market. Here, a more exacting requirement for futures market efficiency is proposed—forecast encompassing....

Analysts’ forecasting of earnings per share for multiple quarter time horizons of eleven agribusiness companies is evaluated using a mean absolute scaled error and a direct test. Results illustrate that unique information is consistently found. Rational and efficient expectations are formed...