Optimism and pessimism in commodity price hedging

Rank dependent utility is used to model the use of corn futures and options on corn futures for a corn buyer. Optimal futures and options positions are numerically calculated by maximising rank dependent utility for a variety of cases. The cases represent three different types of agents-pessimists, strong optimists and weak optimists-for several levels of risk aversion, with and without transactions costs. Whether or not an agent trades as a speculator or a hedger is found to depend on his level of optimism or pessimism, risk aversion and transactions costs.