The study's purpose is to measure the extent to which futures and option prices reflect the subjective price distribution of a subset of market participants, farmers, and grain merchandisers in Illinois. Findings suggest that in most instances the futures price is an appropriate proxy for expected price. However, volatilities implied by option premia usually overestimate the subjective variances of producers and merchandisers. These differences between individual and market expectations of variance are consistent with findings of overconfidence in the psychology literature and should be considered by analysts when making observations about hedging decisions and risk aversion.
Using a survey of industry participants, and an analysis of price relationships, this paper investigates the demise of the diammonium phosphate futures. The results indicate the diammonium phosphate cash and futures markets were not well linked. The results also suggest that the initial specification of diammonium phosphate futures contract may have resulted in its use as a forward contract with a high rate of delivery, reducing market participation and limiting liquidity. Ultimately, the contract failed because it was a poor hedging tool, and was perceived by the industry not to offer benefit beyond existing contracting and risk management practices.
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