| dc.description.abstract | The portfolio model of hedging framework, based off Markowitz (1952), is used to determine the best mix of futures, basis, and option contracts to hedge a soybean purchase from PNW 28 weeks in to the future. Eighteen options are incorporated including in-the-money, at-the-money, and out-of-the-money call and puts with different expiration dates. Futures and option pricing data is extracted from ProphetX from November of 2013 to December of 2016. Expected utility objectives including mean-variance, CVaR, Mean-CVaR, and Mean-CVaR with copula are maximized using linear programming optimization methods. A two stage model is built to simulate hedging scenarios while measuring various statistics. Under high risk aversion, a standard futures hedge performs the best. Buyers with lower risk aversion should explore option strategies. In-the-money calls, collars, strangles, and short butterfly strategies all perform well. | en_US |
