Decision analysis models of futures options purchase decisions

Decision analysis models can provide powerful insights about the relationships between variables in the futures/options purchase decision. These variables include the decision-maker’s risk attitude, assessed price distribution, options conditions and price. This paper structures the ‘put’ option purchase decision faced by decision-makers (as price takers) who consider using the options market to modify their risk profile. Such models can be used to evaluate options as a form of commodity price insurance.