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Abstract
An economic model was developed to analyze the put option
contract role to stabilize prices in the paddy market. The possibility of
using Federal Government Acquisitions (AGF) to complement the option
instrument was considered. The role of the options was to reduce
the risks of storing the product for later sale. The model is applied to
analyze the option instrument implementation in the 2004/05 season.
A two week demand for rice was estimated for the Brazilian market.
The results show that the market prices go up when the government acts
through the AGF. The options serve the purpose of making prices follow
a compatible path. It was estimated that the probability for the option
owners exercise their options is greater when the AGF are not used. One
can conclude that these two tools (AGF and put options) can be used in
a complementary way, with the AGF raising the market prices in the harvesting
period, and the put option contracts making sure that the prices
follow a competitive path and reduce the risks of future prices.