Parameter-Based Decision Making Under Estimation Risk: An Application to Futures Trading

Posted: 10 Sep 1999

See all articles by Sergio H. Lence

Sergio H. Lence

Iowa State University - Department of Economics

Dermot J. Hayes

Iowa State University - Center for Agriculture and Rural Development (CARD)

Abstract

This study shows how the standard portfolio model of futures trading should be modified when there is less than perfect information about the relevant parameters (estimation risk). The standard and the optimal decision rules for futures trading in the presence of estimation risk are compared and discussed. An operational model of futures trading for use under estimation risk is advanced. In the presence of relevant prior and sample information, the model can be used to optimally blend both types of information.

JEL Classification: G11, G13, G14

Suggested Citation

Lence, Sergio H. and Hayes, Dermot James, Parameter-Based Decision Making Under Estimation Risk: An Application to Futures Trading. Available at SSRN: https://ssrn.com/abstract=5305

Sergio H. Lence (Contact Author)

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

Dermot James Hayes

Iowa State University - Center for Agriculture and Rural Development (CARD) ( email )

Ames, IA 50011
United States
515-294-6185 (Phone)

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