Lecture 18 covers hedging using options and compares the benefits of hedging using options versus hedging using futures. Examples of hedging using options are presented. 

Futures and Options

ARE139: Lecture 18, Fall 2015

This course focuses on the institutional structure and economic functions of futures and options markets. Price formation in both commodity (e.g., corn, crude oil, cotton, and cattle) and financial (e.g., Eurodollar, Treasury Bonds, and stock indexes) futures and options markets will be examined in detail. The theory and practice of hedging will be explored in depth. Additional topics include: the theory of inter-temporal price formation for commodities and financials, common approaches used to forecast prices, statistical analysis of historical price behavior, and futures and options market regulation.

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Futures and Options