The portfolio model of hedging framework, based off Markowitz (1952), is used to determine the best mix of futures, basis, and option contracts to hedge a soybean purchase from PNW 28 weeks in to the future. Eighteen options are incorporated including in-the-money, at-the-money, and out-of-the-money call and puts with different expiration dates. Futures and option pricing data is extracted from ProphetX from November of 2013 to December of 2016. Expected utility objectives including mean-variance, CVaR, Mean-CVaR, and Mean-CVaR with copula are maximized using linear programming optimization methods. A two stage model is built to simulate hedging scenarios while measuring various statistics. Under high risk aversion, a standard futures hedge performs the best. Buyers with lower risk aversion should explore option strategies. In-the-money calls, collars, strangles, and short butterfly strategies all perform well.
| Identifer | oai:union.ndltd.org:ndsu.edu/oai:library.ndsu.edu:10365/28548 |
| Date | January 2017 |
| Creators | Moody, Nathaniel David |
| Publisher | North Dakota State University |
| Source Sets | North Dakota State University |
| Detected Language | English |
| Type | text/thesis |
| Format | application/pdf |
| Rights | NDSU policy 190.6.2, https://www.ndsu.edu/fileadmin/policy/190.pdf |
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