Wine Analytics: Futures or Bottles?

Mert Hakan Hekimoğlu, Burak Kazaz, Scott Webster

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

This chapter features a wine distributor’s budget allocation decision between bottled wine and wine futures under weather and market uncertainty. Every May, a distributor determines its investment amount in wine futures of the recent vintage and in bottled wines of the previous vintage. In September, after observing the weather and market conditions during the growing season of the upcoming vintage, the distributor has the flexibility to adjust its initial investments. In May of the following year, the distributor finally collects revenues from these investments. This chapter summarizes three contributions. First, empirical analysis shows that wine futures exhibit greater price volatility than the bottled wines. Second, a mathematical model, built based on the empirical insights, suggests that a wine distributor should always carry some wine futures in its portfolio. Third, financial demonstration shows that a risk-neutral distributor can improve its profits by 21% and this benefit increases in risk aversion.

Keywords

  • Market uncertainty
  • Pricing
  • Risk aversion
  • Weather uncertainty
  • Wine futures

ASJC Scopus subject areas

  • Management of Technology and Innovation
  • Management Science and Operations Research
  • Control and Optimization

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