The inaccuracy of the Black-Scholes formula arises from two aspects: the formula is for European options while most real option contracts are American; the formula is based on the assumption that underlying asset prices follow a lognormal distribution while in the real world asset prices cannot...

This study uses the newly available data from the CFTC to investigate the market impact of futures trading by large hedge funds and CTAs. Regression results show that there is a positive relationship between the trading volume of large hedge funds and CTAs and market volatility. However, a...

The number of meat recalls has increased markedly in recent years. Meat recalls have the potential to adversely affect short run demand for meat because of the associated decline in consumer confidence. This research examines the impact of beef and pork recalls on nearby daily live cattle and...

The optimal hedging portfolio is shown to include both futures and options under a variety of circumstances when the marginal cost of hedging is non-zero. Futures and options are treated as substitute goods, and properties of the resulting hedging demand system are explained. The overall optimal...

Low trading volume in the CME stocker cattle contracts has made hedgers and speculators reluctant to use the contracts. Traders need decision tools to discover prices or to evaluate quoted prices that may not contain all the information in the market. The number of head of stocker weight cattle...

Fats and oils play a prominent role in U.S. dietary patterns. Recent concerns over the negative health consequences associated with fats and oils have led many to suspect structural change in demand conditions. We consider short run (monthly) demand relationships for edible fats and oils. In...

The effects of volatility of barge and ocean freight prices on prices throughout the international grain-marketing channel are analyzed using a Multivariate GARCH-M model. The model is used to infer the extent to which transportation price risk affects the level of international grain prices....

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....

This research compares partial equilibrium and statistical time-series approaches to hedging. The finance literature stresses the former approach, while the applied economics literature has focused on the latter. We compare the out-of-sample hedging effectiveness of the two approaches when...

The purpose of this paper is to investigate the feasibility of a new futures contract for hedging wholesale transactions in the beef industry based on the USDA boxed beef cutout index (BBCO). The results suggest the live cattle futures contract is not an adequate tool to manage the price risk of...