Empirical Minimum-Variance Hedge (The)

Decision making under unknown true parameters (estimation risk) is discussed along with Bayes' and parameter certainty equivalent (PCE) criteria. Bayes' criterion incorporates estimation risk in a manner consistent with expected utility maximization. The PCE method, which is the most commonly used, is not consistent with expected utility maximization. Bayes' criterion is employed to solve for the minimum-variance hedge ratio. Empirical application of Bayes' minimum-variance hedge ratio is addressed and illustrated. Simulations show that discrepancies between prior and sample parameters may lead to substantial differences between Bayesian and PCE minimum-variance hedges.

LAND ALLOCATION IN THE PRESENCE OF ESTIMATION RISK

Estimation risk occurs when parameters relevant for decision making are uncertain. Bayes'Â’ criterion is consistent with expected-utility maximization in the presence of estimation risk. This article examines optimal (BayesÂ’') land allocations and land allocations obtained using the traditional plug-in approach and two alternative decision rules. BayesÂ’' allocations are much better economically than the other allocations when there are few sample observations relative to activities. Calculation of certainty equivalent returns (CERs) with estimation risk is also discussed and illustrated. CERs are typically (and incorrectly) calculated with the plug-in approach. Plug-in CERs may be extremely misleading.Land Economics/Use,

OPTION PRICING ON RENEWABLE COMMODITY MARKETS

Practitioners Abstract: The paper motivates and proposes a closed form option pricing model for markets such as grains or livestock where the price level can be expected to revert to expected production costs. The model suggests that traditional option pricing models will overprice long term options on these markets.Marketing,

RESPONSE TO AN ASYMMETRIC DEMAND FOR ATTRIBUTES: AN APPLICATION TO THE MARKET FOR GENETICALLY MODIFIED CROPS

Demand and Price Analysis, Research and Development/Tech Change/Emerging Technologies,

Sedimentary organic molecules: Origins and information content

To progress in the study of organic geochemistry, we must dissect the processes controlling the composition of sedimentary organic matter. Structurally, this has proven difficult. Individual biomarkers can often be recognized, but their contribution to total organic materials is small, and their presence does not imply that their biochemical cell mates have survived. We are finding, however, that a combination of structural and isotopic lines of evidence provides new information. A starting point is provided by the isotopic compositions of primary products (degradation products of chlorophylls, alkenones derived from coccoliths). We find strong evidence that the isotopic difference between primary carbonate and algal organic material can be interpreted in terms of the concentration of dissolved CO2. Moreover, the isotopic difference between primary and total organic carbon can be interpreted in terms of characteristic isotopic shifts imposed by secondary processes (responsive, for example, to O2 levels in the depositional environment. In favorable cases, isotopic compositions of a variety of secondary products can be interpreted in terms of flows of carbon, and, therefore, in terms of specific processes and environmental conditions within the depositional environment

U.S. FARM POLICY AND THE VARIABILITY OF COMMODITY PRICES AND FARM REVENUES

A dynamic three-commodity rational-expectations storage model is used to compare the impact of the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 with a free-market policy, and with the agricultural policies that preceded the FAIR Act. Results support the hypothesis that the changes enacted by FAIR did not lead to permanent significant increases in the volatility of farm prices or revenues. An important finding is that the main economic impacts of the pre-FAIR scenario, relative to the free-market regime, were to transfer income to farmers and to substitute government storage for private storage in a way that did little to support prices or to stabilize farm incomes.FAIR Act, price volatility, storage, Agricultural and Food Policy,

Adhesive coating eliminated in new honeycomb-core fabrication process

Technique eliminates use of silicone-based adhesive material as bonding medium. Adhesive requires precise time-temperature cure. Prepreg resin is used as bonding medium, and each layer is laminated together to form honeycomb billet. Process can be used in any application where nonmetallic honeycomb core is being fabricated

Systemic Risk in U.S. Crop Reinsurance Programs

This study develops a method to estimate the probability density function of the Federal Risk Management Agency's (RMA's) net income from reinsuring crop insurance for corn, wheat, and soybeans. When calibrated using 1997 data, results from the advocated method show that in 1997 there was a 5% probability RMA would have had to reimburse at least $1 billion to insurance companies, and the fair value of RMA's insurance services to insurance firms in 1997 was$78.7 million. Key words: crop insurance, reinsurance, Risk Management Agency, systemic risk, value at risk