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| Kim, Hyun Seok; Brorsen, B. Wade; Anderson, Kim B.. |
| Some extension economists and others often recommend profit margin hedging in choosing the timing of crop sales. This paper determines producer’s utility function and price processes where profit margin hedging is optimal. Profit margin hedging is shown to be an optimal strategy under a highly restricted target utility function even in an efficient market. Although profit margin hedging is not the optimal rule in the presence of mean reversion, it can still be profitable if prices are mean reverting. Simulations are also conducted to compare the expected utility of profit margin hedging strategy with the expected utility of other strategy such as always hedging and selling at harvest strategies. A variance ratio test is conducted to test for the existence... |
| Tipo: Conference Paper or Presentation |
Palavras-chave: Expected utility; Mean reversion; Profit margin hedging; Target. |
| Ano: 2007 |
URL: http://purl.umn.edu/37570 |
