Optimal Hedging and the Access Value of Futures and Options: The Case of U.S. Corn Producers

This study examines the optimal responses of a risk-averse com producer to quantity and price uncertainty when futures and options contracts are available as risk management tools. For the agent's optimal strategy, numerical optimization techniques are used to solve the expected utility maximization problem. The producer is assumed to form his subjective probability distributions for random cash, futures, and options prices, and yield. Optimal market positions are obtained for three scenarios: (i) the producer is allowed to used only futures, (ii) the producer is allowed to use only options, and (iii) the producer is allowed to use both futures and options as risk management tools. The optimal market positions indicate that options are more useful as speculative tools rather than an alternative hedging instruments when the futures is already in use.