Can Options Be Used as a Hedging Instrument?

Yong Sakong, Dermot J. Hayes, Arne Hallam
January 1992  [92-WP 85]

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Suggested citation:

Sakong, Y., D.J. Hayes, and A. Hallam. 1992. "Can Options Be Used as a Hedging Instrument?" Working paper 92-WP 85. Center for Agricultural and Rural Development, Iowa State University.


We develop a portfolio choice model for farmers faced with both price and production uncertainty who can hedge this uncertainty using both options and futures contracts. We then simulate the decision process of a typical Iowa farmer and derive his or her optimal options and futures position.