these games and takes paper orders to trans-
act commodity market activities. This ap-
proach has the advantage of confronting the
student with realistic situations. But it also
has the drawback of providing a very limited
set of market experiences (i.e., only about 10
to 15 weeks’ worth). Compared to a “paper
trading game” approach, the Market Risk
Game allows the player to see many market
situations in a very short period of time.
Within hours the equivalent of years of paper
trading experience can be simulated. The
main disadvantage of the simulation game ap-
proach is some loss of realism relative to the
paper game. But in the earlier stages of learn-
ing the mechanics and strategy of using
futures contracts and options, this is believed
to be more than compensated for by the
varied experiences given to the player by
computer simulation.
A number of microcomputer programs have
been developed to analyze the futures market
for commodities. An extensive listing of these
programs can be found in the publication com-
piled by the North Central Computer Insti-
tute entitled “Agricultural Software Inven-
tory.” Most existing computer software pro-
grams dealing with the futures market are not
learning-oriented programs. They generally
assume the user has a working knowledge of
the futures market and needs computational
help in developing and evaluating alternative
risk management strategies that make use of
the futures market. For example, there are
dozens of programs that aid in chart construc-
tion and technical analysis of the futures
market. Several programs also exist which
specifically evaluate commodity options. They
include “Ag Option Systems” and “OP-
MASTER” (Brugler) among others. Most of
these programs focus on calculating the op-
tion’s premium rather than the use of options
in a marketing plan (i.e., they consider the in-
fluence of market volatility, time, and strike
prices upon the premium). Two microcom-
puter programs which do focus upon risk
analysis and marketing are the “Whole Farm
Risk-Rated Microcomputer Model” by Ander-
son and Ikerd and the “Agricultural Risk
Management Simulator” (ARMS) by King and
Black. These models consider both production
and market risk, but focus much more heavily
on production risk than market risk. Thus a
void appears to exist in microcomputer pro-
grams to teach the use of hedging and options
as a market risk management tool.
GAME OVERVIEW
The game functions by simulating daily
market prices through random processes
designed to reflect realistic market variability.
These random processes ensure that no two
rounds of the game will be the same.
However, care is taken to ensure that current
and expected cash market prices, futures
prices, and options prices are all simulated
with realistic interrelationships. The
simulated daily cash and futures prices are
graphically displayed on the computer screen.
Players have the choice on each trading day of
taking an action in the cash market, placing a
hedge, or using a put option. Choices that in-
volve speculating on the futures market, such
as attempting to hedge when you do not own
the cash commodity, are overridden and an
explanation of their irrationality as a hedging
strategy is given. To aid the players in making
their market action decisions, a number of
evaluation and information summary displays
are available for viewing through a “Trading
Alternatives Menu.” Various alternatives on
the menu display the standard calculations
one would undertake to evaluate a hedge or a
put option. In each case, the calculations show
how cash prices, futures prices, commissions,
basis, premiums, etc. are related to determine
the expected profit consequences of a selected
action. The calculations made are displayed in
enough detail to enable the players to repeat
them by themselves using paper and pencil.
Once a player has taken a position in the
market, the consequences of taking this posi-
tion are updated daily and are available for
display. Also the consequences of alternative
actions the player could have taken are main-
tained (i.e., if a player hedged grain, the conse-
quences of having used a put option or remain-
ing unhedged are also shown as the game pro-
gresses).
The basic purpose of the Market Risk Game
is to serve as a mechanism to provide players
with a set of “learning experiences.” Through
these learning experiences, the fundamentals
of hedging and using put options as market
risk management tools can be extended and
enhanced. The game provides realistic ex-
perience in analyzing a market situation, taking
an action, and then evaluating the consequences
of that action as they evolve. Misconceptions
about the market situation or the mechanics of
hedging and using put options will lead to
unexpected game results. Through repeated
play of the game, these misconceptions can be
resolved. But this is not the teaching strength
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