Browsing by Author "Nick Piggott, Committee Member"

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Affine Diffusion Modeling of Commodity Futures Price Term Structure
(2003-07-28) Tian, Yanjun; Nick Piggott, Committee Member; Peter Bloomfield, Committee Member; John Seater, Committee Member; Paul Fackler, Committee Chair
Diffusion modeling of commodity price behavior is important for commodity risk management. This research seeks to improve upon the existing commodity diffusion models by incorporating stochastic volatility and seasonality through the affine diffusion framework. In particular, it evaluates affine diffusion models' performance at modeling commodity futures price term structure. Six affine diffusion models are studied in this research. They are one, two, three-factor Gaussian model and one, two, three-factor stochastic volatility model with a single stochastic volatility factor. Seasonality is modeled by allowing the forcing terms of the instantaneous drift and the instantaneous covariance to be seasonal. Model estimation is done through Q-MLE, for which the state variables are filtered through the Kalman Filter. To build the connection between affine diffusion models and known market regularities, affine state variables are interpreted. Factor interpretations used include the log of the spot price, a spot drift factor, and a spot variance factor. Empirical analysis covers models' performance at fitting and predicting futures price term structures; behavior of the interpretable models; and model stability. Empirical studies are applied to the corn and the unleaded gasoline markets. The following conclusions can be drawn from both markets: 1. For the purpose of modeling futures price dynamics alone, stochastic volatility models have no advantage over Gaussian models; 2. At least two factors are needed to adequately model commodity futures price term structures; the advantage of three-factor models, which is better capturing the curvature of the term structures, become evident under extreme market conditions; 3. State independent seasonality modeling is effective under most market conditions, but under extreme market conditions, seasonality can be mis-represented and it is the source of big measurement errors and prediction errors. 4. Two and three-factor affine diffusion models are able to generate model behavior that is consistent with known market regularities.
A Hedonic, Hedonic Metric and Logistic Approach to Estimating Demand for Fluid Milk Products Using Micro Level Data
(2008-11-10) Gulseven, Osman; John Monahan, Committee Member; Michael Wohlgenant, Committee Chair; Nick Piggott, Committee Member; Barry Goodwin, Committee Member; Raymond Palmquist, Committee Member
This study analyzes the market for functionally enhanced milk products. The first paper investigates the factors that derive the demand for soymilk products based on a two-stage hedonic model. In the first stage, the relationship between the prices of dairy products and the attributes of these products are exploited to derive the marginal implicit attribute prices. In the second stage, we used these prices along with the information on householdsâ€™ demographic background to explain the demand for product attributes. Our results indicate that although the soymilk taste is undesirable, since soymilk is lactose/cholesterol free (LFCF) and mostly organic, it has a higher price premium than other milk types. In the second paper, we introduced the concept of Hedonic Metric (HM) approach as an approximation method to estimate the price elasticities in classical traditional models. In these models, the number of estimated parameters increases exponentially with the number of variables included in the model. HM method applied in this paper is practical and significantly reduces the number of parameters. The HM approach is compared with the Distance Metric (DM) approach of Rojas and Peterson (2008) to see which method gives better approximations to original LA/AIDS and RM models. In the last paper, we applied a two-stage logistic estimation to analyze consumer attitudes towards specialty milk types. In the first stage of our estimation we estimated the hedonic attribute prices. In the second stage we used these implicit prices along with the demographic information on households to estimate the factors that affect householdsâ€™ decision to purchase specialty milk types. Our results indicate that while CFLF attribute and soy attribute are complementary with each other, whereas the organic attribute is a substitute to them. Minority households have a much higher probability of purchasing specialty milk types than white households.
Three Essays on the Production Effects of Decoupled Payments: Do Decoupled Payments Matter for Acres and Yields?
(2009-12-05) Girante, Maria Joana Sacramento; Nick Piggott, Committee Member; Walter N. Thurman, Committee Member; Ivan T. Kandilov, Committee Member; Barry K. Goodwin, Committee Chair
Conventional wisdom suggests that if decoupled payments do not distort market incentives, they should not distort production or trade. But the literature has identified several potential â€œcouplingâ€ mechanisms that suggest theory and practice are not in accord. Using both estimation and simulation methods, we analyze the effect of decoupled payments on farmersâ€™ decisions in the presence of one such mechanism, credit constraints. Intuitively, as payments enhance the liquidity and/or the collateral of credit constrained farmers, additional investment in production is allowed to occur. We estimate the marginal effect of decoupled payments on total, owned, and pasture acres, and on acres of corn, sorghum, soybeans, and wheat and observe whether payments matter more for more leveraged farmers. Our ability to observe farms over time allows us to improve on the existing literature by controlling for farm-specific unobserved effects. In an effort to analyze the income stabilization aspect of these payments we further estimate their effect on farm household consumption expenditures. The significant acreage effects and insignificant marginal propensity to consume suggest payments are being not put to the policy makersâ€™ intended use. We also extend the existing literature by using simulation methods in an expected utility maximization framework to evaluate the effects of doubling the amount of payments received and of recently proposed tighter payment limits on the typical Kansas wheat farmerâ€™s acreage and borrowing decisions. While tighter limits do not appear to matter, the collateral boosting effect of payments allows farmers to put more acres into production. Finally, we estimate the ability of farm characteristics to explain differences in crop yield performance. Our results reveal the potential for decoupled payments to boost relative yields and give an unfair advantage to their recipients. This may become an issue in future WTO discussions over the distortionary effects of decoupled payments.
Valuation of the Environmental Impact of Roundup Ready Soybeans Based on a New Herbicide Risk Index
(2005-11-13) Sydorovych, Olha; Bryan Hubbell, Committee Member; Dan Phaneuf, Committee Member; Nick Piggott, Committee Member; Michele C. Marra, Committee Chair
Genetically engineered crop varieties are designed to simplify and provide additional options for pest management. However, the empirical evidence concerning the impacts of GE crops adoption on pesticide use and resulting environmental quality is mixed. A methodology was developed for the analysis of the environmental impacts of pesticides that can be applied in the areas of comparative evaluation of alternative pest management strategies and individual pesticides. First, an index system was developed for individual herbicides combining the information on their acute and chronic health risks with their toxicity to non-target species and the environment. A key challenge was to choose the weights that will determine the relative effects of the individual components of the index. An improvement on the previous attempts to create pesticide environmental indexes was made by applying revealed preference information, resulting in more reliable weight estimates based on a cardinal scale of the importance of different risks. Second, the stated preference valuation technique was used to estimate the monetary value of a change in herbicide safety resulting from adoption of Roundup Ready soybean varieties. The data were generated by a computer-aided telephone survey of U.S. soybean farmers. The information on actual herbicide choices made by the farmers, combined with the information about different production-related and safety attributes of the herbicides, was used to establish which herbicide attributes mattered most to the farmers in their herbicide choices. In particular, information on the farmers' preferences for herbicide environmental and human safety attributes was used to calculate the relative weights of the herbicide risk index incorporating all the relevant herbicide safety information. The results show that, in addition to production related characteristics, farmers consider herbicide safety attributes in their choice decisions. The risk indices of individual herbicides developed here were used to calculate the average toxicity of herbicides used on conventional and Roundup Ready soybeans, and the corresponding difference in herbicide toxicity indicating that, on average, the farmers experienced a reduction in herbicide toxicity when switching to Roundup Ready soybeans compared to conventional soybeans. To the average farmer the value of improved herbicide safety on Roundup Ready soybeans was estimated to be between $0.04 and $1.13 per acre per year.