THE USE OF MEAN-VARIANCE FOR COMMODITY FUTURES AND OPTIONS HEDGING DECISIONS

This study provides additional evidence of the usefulness of mean-vari ance procedures in the presence of options which can truncate and skew the returns distribution. Using a simulation analysis, price hedging decisions are examined for hog producers when options are available. M ean-variance results are contrasted with optimal decisions based on ne gative exponential and Cox-Rubinstein utility functions over 56 ending price scenarios and two levels of risk aversion. The findings from ou r simulation, which considers discrete contracts, basis risk, lognorma lity in prices, transactions costs, and alternative utility specificat ions, affirm the usefulness of the mean-variance framework.