Congress has directed the Department of Agriculture to perform research and establish a pilot program to determine the feasibility of using regulated agricultural commodity options trading for the benefit of farmers to protect them from fluctuations in the value of their commodities. The purpose of this study is to examine the prospects for using put options in place of current farm income support programs. It focuses on the feed corn program in its analysis. It also examines available literature on the subject of using futures and options contracts to replace current farm programs. The study uses the Black model for the pricing of options on futures contracts to estimate prices of options that would provide a level of income protection similar to that afforded by the current income support program for corn farmers. It goes on to estimate the fair value of the implicit put options granted by the Federal government for the 1982 - 1989 crops of corn and compares those values to actual program costs. The results suggest the possibility that program costs are higher than they need be because government price and income guarantees are provided at a cost in excess of the fair market values of the current program's implicit options and that transfer of some or all of the risk-bearing role to the private sector would result in reduced government costs. / Master of Arts

Corn production is scattered geographically over various continents, but most of it is grown in the United States. As such, the world price of corn futures contracts is largely dominated by North American corn prices as traded on the Chicago Board of Trade. In recent years, this market has been characterised by an increase in price volatility and magnitude of price movement as a result of decreasing stock levels. The development and implementation of an effective and successful derivative price risk management strategy based on the Chicago Board of Trade corn futures contract will therefore be of inestimable value to market stakeholders worldwide. The research focused on the efficient market hypothesis and the possibility of contesting this phenomenon through an application of a derivative price risk management methodology. The methodology is based on a combination of an analysis of market trends and technical oscillators with the objective of generating returns superior to that of a market benchmark. The study found that market participants are currently unable to exploit price movement in a manner which results in returns that contest the notion of efficient markets. The methodology proposed, however, does allow the user to consistently achieve returns superior to that of a predetermined market benchmark. The benchmark price for the purposes of this study was the average price offered by the market over the contract lifetime, and such, the efficient market hypothesis was successfully contested. / Business Management / D. Com. (Business Management)

Corn production is scattered geographically over various continents, but most of it is grown in the United States. As such, the world price of corn futures contracts is largely dominated by North American corn prices as traded on the Chicago Board of Trade. In recent years, this market has been characterised by an increase in price volatility and magnitude of price movement as a result of decreasing stock levels. The development and implementation of an effective and successful derivative price risk management strategy based on the Chicago Board of Trade corn futures contract will therefore be of inestimable value to market stakeholders worldwide. The research focused on the efficient market hypothesis and the possibility of contesting this phenomenon through an application of a derivative price risk management methodology. The methodology is based on a combination of an analysis of market trends and technical oscillators with the objective of generating returns superior to that of a market benchmark. The study found that market participants are currently unable to exploit price movement in a manner which results in returns that contest the notion of efficient markets. The methodology proposed, however, does allow the user to consistently achieve returns superior to that of a predetermined market benchmark. The benchmark price for the purposes of this study was the average price offered by the market over the contract lifetime, and such, the efficient market hypothesis was successfully contested. / Business Management / D. Com. (Business Management)