{"title":"The pricing of variance risks in agricultural futures markets: do jumps matter?","authors":"Xinyue He, Siyu Bian, Teresa Serra","doi":"10.1093/erae/jbad026","DOIUrl":null,"url":null,"abstract":"\n The existence of a negative variance risk premium on agricultural futures contracts suggests that market participants pay to hedge unexpected increases in the volatility of these contracts. In this paper, we decompose the variance risk premium in corn and soybeans markets into jump and diffusive components using options and futures data from 2009 to 2021. We find that market participants on average only pay to hedge unexpected increases in jump volatility but not those in diffusive volatility. Furthermore, growing season uncertainty and the arrival of United States Department of Agriculture (USDA) announcements play important roles in driving the market’s fear of unexpectedly large price jumps.","PeriodicalId":50476,"journal":{"name":"European Review of Agricultural Economics","volume":null,"pages":null},"PeriodicalIF":3.3000,"publicationDate":"2023-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"European Review of Agricultural Economics","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1093/erae/jbad026","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"AGRICULTURAL ECONOMICS & POLICY","Score":null,"Total":0}
引用次数: 0
Abstract
The existence of a negative variance risk premium on agricultural futures contracts suggests that market participants pay to hedge unexpected increases in the volatility of these contracts. In this paper, we decompose the variance risk premium in corn and soybeans markets into jump and diffusive components using options and futures data from 2009 to 2021. We find that market participants on average only pay to hedge unexpected increases in jump volatility but not those in diffusive volatility. Furthermore, growing season uncertainty and the arrival of United States Department of Agriculture (USDA) announcements play important roles in driving the market’s fear of unexpectedly large price jumps.
期刊介绍：
The European Review of Agricultural Economics serves as a forum for innovative theoretical and applied agricultural economics research.
The ERAE strives for balanced coverage of economic issues within the broad subject matter of agricultural and food production, consumption and trade, rural development, and resource use and conservation. Topics of specific interest include multiple roles of agriculture; trade and development; industrial organisation of the food sector; institutional dynamics; consumer behaviour; sustainable resource use; bioenergy; agricultural, agri-environmental and rural policy; specific European issues.
Methodological articles are welcome. All published papers are at least double peer reviewed and must show originality and innovation. The ERAE also publishes book reviews.
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