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Weighted Expected Utility Hedge Ratios

Author

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  • Frechette, Darren L.
  • Tuthill, Jonathan W.

Abstract

We derive a new hedge ratio based on weighted expected utility. Weighted expected utility is a generalization of expected utility that permits non-linear probability weights. Generally speaking weighted expected utility hedge ratios are less than minimum variance hedge ratios and larger than expected utility hedge ratios.

Suggested Citation

  • Frechette, Darren L. & Tuthill, Jonathan W., 2000. "Weighted Expected Utility Hedge Ratios," 2000 Conference, April 17-18 2000, Chicago, Illinois 18931, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    • Handle: RePEc:ags:ncrtci:18931
    DOI: 10.22004/ag.econ.18931
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    References listed on IDEAS

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    1. Sergio H. Lence, 1995. "The Economic Value of Minimum-Variance Hedges," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(2), pages 353-364.
    2. Cecchetti, Stephen G & Cumby, Robert E & Figlewski, Stephen, 1988. "Estimation of the Optimal Futures Hedge," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 623-630, November.
    3. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-154, Summer.
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    Cited by:

    1. William W. Wilson & William E. Nganje & Robert Wagner, 2006. "Hedging Strategies for Grain Processors," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(2), pages 311-326, June.
    2. Wilson, William W. & Wagner, Robert & Nganje, William E., 2003. "Strategic Hedging For Grain Processors," Agribusiness & Applied Economics Report 23637, North Dakota State University, Department of Agribusiness and Applied Economics.

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