Journal
FOOD POLICY
Volume 102, Issue -, Pages -Publisher
ELSEVIER SCI LTD
DOI: 10.1016/j.foodpol.2021.102064
Keywords
WASDE; Implied volatility; USDA reports; Options; Risk; GARCH; Moneyness
Ask authors/readers for more resources
In January 2019, a government shutdown impacted the publication of agricultural information by the USDA, resulting in increased uncertainty in the Chicago Mercantile Exchange corn and soybean markets, raising the cost of risk management using options. Data analysis suggests this uncertainty led to a significant increase in risk management costs for corn and soybeans.
In January 2019, a government shutdown prevented the U.S. Department of Agriculture from publishing information about the situation and outlook for major U.S. agricultural commodities. We show that, as a result, Chicago Mercantile Exchange markets for corn and soybeans experienced heightened uncertainty, elevating the cost of managing risk using options. We use historical options data to estimate that, on the first day of trading following the normally scheduled USDA publication time, the additional commodity market uncertainty caused by the government shutdown increased the price of managing risk using ATM corn and soybean options by 2.95% and 1.66%, respectively, using an approach that assumes a normal January report impact. Using a different counterfactual approach - assuming that the observed, abnormally large implied volatility reduction following the February 2019 publication would have been experienced in January - we find that the increase in risk management costs due to missing information was actually about 11.5% for corn and 4.4% for soybeans.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available