A DERIVATIVE SECURITY APPROACH TO SETTING CROP REVENUE COVERAGE INSURANCE PREMIUMS

The nature of indemnities and reliance on futures price averaging during two distinct time intervals throughout the production year imply Crop Revenue Coverage (CRC) insurance behaves like an exotic put option. Treating this type of insurance as a derivative security, an analytical model is developed and an algorithm for solving the model to place a lower bound on insurance premiums is presented. Monte Carlo simulation, taking into account the path-dependent nature of an Asian-type option, is then used to determine lower-bound estimates for insurance premiums on corn gross revenue under specified price and yield distributions.


Issue Date:
2000-07
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/30839
Published in:
Journal of Agricultural and Resource Economics, Volume 25, Number 1
Page range:
159-176
Total Pages:
18




 Record created 2017-04-01, last modified 2017-04-17

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