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Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases With Application to Rating Dairy Margin Insurance

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  • Bozic, Marin
  • Newton, John
  • Thraen, Cameron S.
  • Gould, Brian W.

Abstract

We develop a new parametric bootstrap-based statistical test for presence of futures price and options-based implied volatility biases. The new test is applicable to data with overlapping prediction horizons. Information on anticipated volatility embedded in options prices is explicitly used when testing for futures price biases. Our method is well adapted to analysis of fast changing commodity markets as it does not rely on asymptotic theory and does not require a time series spanning several decades. We apply the new test to investigate if futures and options biases can explain very low loss ratios exhibited by USDA’s Livestock Gross Margin for Dairy Cattle insurance program.

Suggested Citation

  • Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2014. "Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases With Application to Rating Dairy Margin Insurance," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170416, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:170416
    DOI: 10.22004/ag.econ.170416
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    References listed on IDEAS

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    Cited by:

    1. John Newton & Cameron S. Thraen & Marin Bozic, 2016. "Evaluating Policy Design Choices for the Margin Protection Program for Dairy Producers: An Expected Indemnity Approach," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 38(4), pages 712-730.

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    Keywords

    Agricultural and Food Policy; Research Methods/ Statistical Methods; Risk and Uncertainty;
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