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Determining The Effectiveness Of Optimal Time-Varying Hedge Ratios For Cattle Feeders Under Multiproduct And Single Commodity Settings, Hernan A. Tejeda, Dillon M. Feuz

Applied Economics Faculty Publications

The purpose of this paper is to determine and contrast the risk mitigating effectiveness from optimal multiproduct time-varying hedge ratios, applied to the margin of a cattle feedlot operation, over single commodity time-varying and naive hedge ratios. Design/methodology/approach – A parsimonious regime-switching dynamic correlations (RSDC) model is estimated in two-stages, where the dynamic correlations among prices of numerous commodities vary proportionally between two different regimes/levels. This property simplifies estimation methods for a large number of parameters involved. Findings – There is significant evidence that resulting simultaneous correlations among the prices (spot and futures) for each commodity attain different levels along …