PRICING MODELS FOR SALE OPTIONS ON CORN FUTURES CONTRACTS IN THE BRAZILIAN MARKET (Atena Editora)

Abstract

In order to assist rural producers in managing market risk, the Federal Government's Minimum Price Guarantee Policy [PGPM] allows subsidizing premiums from sales option contracts in hedging operations for agricultural products. The objective of this study was to analyze the effectiveness of pricing models in evaluating out-of-the-money put options on corn futures contracts in the Brazilian market. The Black, Binomial and Least Squares Monte Carlo [LSM] models were tested, combined with historical, implicit and deterministic volatility forecasters. The premiums obtained by the different models were compared to those actually practiced in the market. The Black model, followed by the Binomial, both combined with implied volatility, presented the smallest deviations in relation to real market premiums, according to the mean absolute percentage error [MAPE] criterion, as well as the smallest dispersions, measured by the square root of the root mean square error [RMSE]. The LSM method underpriced options far out of the money when combined with any of the volatility estimators analyzed. When combined with historical volatility, the models under analysis proved to be less accurate and less precise. The deterministic volatility estimator of the Generalized Conditional Autoregressive Heteroscedasticity model [Garch] presented intermediate performance. The results corroborated the wide use of the Black model, which demonstrated the best performance in the precision and accuracy criteria, among the option pricing models analyzed, especially when associated with implied volatility.