tract, or they may choose not to hedge. Hedg-
ing can be done at any time after the purchase
date, but once a hedge is placed it cannot be
removed until the cattle are sold. Sale of the
cattle is not permitted until the last 10 days of
the game. This restriction is intended to
reflect the fact that cattle cannot be sold until
they reach slaughter weight. An 85-day
trading period is simulated. A longer period
may have been more realistic, but the graphic
display capabilities of the microcomputer used
limited the simulation length to 85 periods.
In the wheat game, players are assumed to
initially have 5,000 bushels of wheat in storage
that is unhedged. They may sell the wheat any
time during the 85 days of simulated market
activity. They also may hedge the wheat any
time during the 85 days using either a futures
contract or a put option. As in the case of cat-
tle, the hedge cannot be lifted until the wheat
is sold. Players are assumed to own their own
storage facilities. Hence a $5-per-day fixed
cost exists for storage whether wheat is in
storage or not. Interest cost is charged
against unsold wheat.
In both the cattle and wheat game, players
are told that they will be given a daily score
based upon their current profit situation.
Penalty points will be deducted if their losses
exceed 10 percent of their gross value. Addi-
tional penalty points will be assessed when
losses exceed 20 percent of the gross value.
Presentation of the Initial Market Situation
Action in the game is started by simulating
seven days of futures and cash prices. A fore-
cast of future price expectations is then
presented. This forecast is given in a report
form such as one might read in a paper or
magazine. The effective result of the forecast
is to give the player a positive, negative, or
neutral price outlook. The computational
result of the forecast is to alter or “bias” the
way the forthcoming sequence of market
prices are simulated. Day-to-day price
changes are simulated by drawing a random
price change and adding it to the previous
day’s price. For a neutral price forecast,
changes in the futures market prices are
drawn from a discrete approximation of a nor-
mal distribution with a mean of zero and stan-
dard deviation of roughly one-half of the value
of a limit move for the contract price in ques-
tion. The distribution is truncated at a limit
move. For a favorable∕unfavorable forecast,
the distribution is shifted UpwardZdownward
by about one-fifth of a standard deviation.
This procedure generally results in prices
trending in the direction they were forecasted
to move. However, in some cases the ran-
domness of the process will lead to trends op-
posite of that forecasted. This occasional
discrepancy between the forecasted and
simulated trend was sought in the design of
the game. To further add to the realism of the
uncertainty about future price trends, the
forecast is updated halfway through the game.
The trend inferred in the update is random
and independent of the initial forecast. Hence
a positive price trend may be reversed and
vice versa.
Simulation of the Market Period
The basic screen displayed to players during
the simulation is a bar chart showing the
futures prices and cash prices for each of the
85 simulated days. An example of this chart as
it would appear midway through the game is
given in Figure 1. The futures price series,
which is denoted by an “F” at the beginning
of the charted price series, shows the high,
low, and closing price for each day. The cash
price series, denoted by a “C,” shows only one
price. In the upper left-hand corner of the
chart, a number is continually displayed which
represents the player’s current game score.
Beneath the price chart, quotes of the cur-
rent futures price, cash price, and the
premium of two different put options are
shown. A prompting statement indicating the
possible entries a player can make to proceed
with the game is also shown. To proceed,
players must enter a number between zero
and nine. Entering a value of zero will cause a
“Trading Alternatives Menu” to appear on
the screen. This menu allows the player to
make marketing decisions. The nature of
these decisions will be discussed presently.
Entering a value from one to nine will cause
the corresponding number of days of market
activity to be simulated. As these days are
simulated the information at the bottom of the
chart is updated and the chart is plotted. The
options premiums displayed are calculated using
an adapted version of the BlackZSholes model
presented by Labuszewski. The two option
strike prices selected are set at the beginning
of the game. One is selected to be “in the
money” and the other is selected to be “out of
the money.”
Day-to-day changes in futures prices are
generated randomly as discussed previously.
Daily cash prices are determined from the
futures prices. This structure should not be
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