Empirical Application to Hog Futures Sample Clauses

Empirical Application to Hog Futures. ‌ I use the case of hog futures to test our methods. All hog futures with expiration prior to February 1997 were live hog futures based on the live price of hogs. The live hog futures contract was replaced by the lean hog futures contract, based on a lean weight carcass price, with the release of the lean hog futures contract for expiration in February 1997. The February 1997 lean hog futures contract began trading in November 1995, replacing the February live hog futures contract. From that point, a new lean hog futures contract replaced the existing live hog futures contract as the latter matured. The last live hog futures contract was the live hog futures contract that expired in December 1996. During the period of time between November 1995 and December 1996 live hog futures contracts and lean hog futures contracts were trading at the same time. I use our methods to generate lean hog futures prices and compare them to the realized lean hog futures prices during this period. The futures contracts for different maturities traded between October 1995 and December 1996 are displayed in figure 4.1 where black lines denote live hog futures contracts with different maturities and gray lines denote the new lean hog futures contracts. At any given point in time between December 1984 (where our data begins) and January 1996 there is a deferred live hog futures contract trading that is at least 11 months to maturity. Specifically, as of January 1996 the December 1996 contract is 11 months out to maturity. Note that the December 1996 live hog contract is the last live hog futures contract. After January 1996 there is no deferred live hog futures contract trading that is at least 11 months to maturity. Note that the February 1997 live hog futures contract (the shortest black line in figure 4.1) is replaced by the new lean hog futures contract. Between January 1996 and March 1996 the number of live hog futures contracts is reduced by one and the maturity of the furthest contract (December 1996) is shortened to only 9 months (March 1996 – December 1996). As this process continues, where new lean hog futures contracts start trading to replace live hog futures contracts as they mature, after October 1996, there is only 1 remaining live hog futures contract (the December 1996 contract) with only 1 month to maturity. After November 1996 no more live hog futures contracts exist. I estimate the model through November 1996, using all available prices of live hog futures4. T...
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Empirical Application to Hog Futures. ‌ In this section, I discuss the results from the empirical application to hog futures, where I evaluate the accuracy of the model to generate hypothetical futures prices. To evaluate the accuracy of the model, I calculate RMSEs of the generated prices as discussed in section 4.4.1. First, I estimate the state variables and parameters required for generating futures prices for in-sample live hogs, out-of-sample live hogs, and out-of- sample lean hogs. The results of the state variable and parameter estimation, along with stationarity and cointegration testing, can be found in the appendix. Then, I generate futures prices for in-sample live hogs, out-of-sample live hogs, and out-of-sample lean hogs. In the following section, I present the results of the RMSEs of those generated futures prices.

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