The Demand for Hedging and the Value of Hedging Opportunities |
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| Authors: | Darren L Frechette |
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| Institution: | Department of Agricultural Economics and Rural Sociology, Pennsylvania State University |
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| Abstract: | Hedging strategies typically assume that hedging is costless and that only one futures market exists. When these assumptions are dropped, the demand for hedging is shown to depend on basis risk, price risk, and the hedger's risk preference. The marginal and incremental value of hedging opportunities are computed for the general cases of one and two markets and applied to the specific case of Pennsylvania dairy input hedging. |
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| Keywords: | basis risk corn prices dairy hedging risk management |
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