PERFECT CROSS-HEDGING OPPORTUNITIES VIA FORMULA PRICING: THE CASE OF THE BROILER INDUSTRY

One supplier of broilers without giblets (WOGs) offers customers a choice between paying Urner Barry's WOG quote or a formula price based on futures prices. From a buyer's perspective, the formula price is second-degree stochastic dominant, thus acting a marketing inducement. The formula price allows the seller to set almost perfect cross-hedges of WOGs with corn and soymeal. Stochastic dominance results suggested that the seller's dominant strategy would shift from the unhedged Urner Barry quote to the unhedged formula price as risk aversion increased. The hedged formula price was prominent in optimal portfolios of pricing strategies.


Issue Date:
2000
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/21765
Total Pages:
26
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-10-19

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