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Techniques for Multivariate Simulation from Mixed Marginal Distributions with Application to Whole-Farm Revenue Simulation

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  • Anderson, John D.
  • Harri, Ardian
  • Coble, Keith H.

Abstract

Alternative techniques for representing dependencies among variables in multivariate simulation are discussed and compared in the context of rating a whole-farm insurance product. A procedure by lman and Conover (IC) that is common in actuarial applications is compared to a new technique detailed by Phoon, Quek, and Huang (PQHl. Results suggest that rates derived from the IC procedure may be inaccurate because the procedure produces biased estimates of correlation between simulated variables. This situation is improved with the PQH procedure.

Suggested Citation

  • Anderson, John D. & Harri, Ardian & Coble, Keith H., 2009. "Techniques for Multivariate Simulation from Mixed Marginal Distributions with Application to Whole-Farm Revenue Simulation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), pages 1-15, April.
    • Handle: RePEc:ags:jlaare:50076
    DOI: 10.22004/ag.econ.50076
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    References listed on IDEAS

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    1. Zhang, Rui (Carolyn) & Houston, Jack E. & Vedenov, Dmitry V. & Barnett, Barry J., 2007. "Hedging Downside Risk to Farm Income with Futures and Options: Effects of Government Payment Programs and Federal Crop Insurance Plans," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9911, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2006. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(1), pages 121-137, March.
    3. David A. Hennessy & Bruce A. Babcock & Dermot J. Hayes, 1997. "Budgetary and Producer Welfare Effects of Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1024-1034.
    4. Edward Frees & Emiliano Valdez, 1998. "Understanding Relationships Using Copulas," North American Actuarial Journal, Taylor & Francis Journals, vol. 2(1), pages 1-25.
    5. Robert T. Clemen & Terence Reilly, 1999. "Correlations and Copulas for Decision and Risk Analysis," Management Science, INFORMS, vol. 45(2), pages 208-224, February.
    6. Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2006. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(1), pages 121-137, March.
    7. Paulson, Nicholas D. & Babcock, Bruce A., 2007. "The Effects of Uncertainty and Contract Structure in Specialty Grain Markets," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9856, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. DeeVon Bailey & James W. Richardson, 1985. "Analysis of Selected Marketing Strategies: A Whole-Farm Simulation Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 67(4), pages 813-820.
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    Citations

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    Cited by:

    1. Coble, Keith H. & Barnett, Barry J. & Riley, John Michael, 2013. "Challenging Belief in the Law of Small Numbers," 2013 AAEA: Crop Insurance and the Farm Bill Symposium 156958, Agricultural and Applied Economics Association.
    2. Ubilava, David & Barnett, Barry J. & Coble, Keith H. & Harri, Ardian, 2011. "The SURE Program and Its Interaction with Other Federal Farm Programs," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(3), pages 1-19.
    3. Adhikari, Shyam & Luitel, Kishor, 2016. "Comparative Analysis of Producer Welfare Benefits of Yield Substitution and Yield Exclusion," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235567, Agricultural and Applied Economics Association.
    4. Adhikari, Shyam, 2015. "Optimal Coverage Level and Producer Participation in Supplemental Coverage Option in Yield and Revenue Protection Crop Insurance," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205053, Agricultural and Applied Economics Association.
    5. Davis, Todd D. & Anderson, John A. & Young, Robert E. III, 2014. "How Would Farm Managers Respond to a Limit on Crop Insurance Premium Subsidies?," 2014 AAEA: Crop Insurance and the 2014 Farm Bill Symposium: Implementing Change in U.S. Agricultural Policy, October 8-9, 2014, Louisville, KY 184244, Agricultural and Applied Economics Association.
    6. Adhikari, Shyam & Knight, Thomas O. & Belasco, Eric J., 2013. "Yield Guarantees and the Producer Welfare Benefits of Crop Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(1), pages 1-15, April.
    7. Anderson, John D. & Barnett, Barry J. & Coble, Keith H., 2009. "Impacts of the SURE Standing Disaster Assistance Program on Producer Risk Management and Crop Insurance Programs," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49304, Agricultural and Applied Economics Association.
    8. Chalise, Lekhnath & Coble, Keith H. & Barnett, Barry J. & Miller, J. Corey, 2017. "Developing Area-Triggered Whole Farm Revenue Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(1), pages 1-18, January.
    9. Ghahremanzadeh, Mohammad & Mohammadrezaei, Rassul & Dashti, Ghader & Ainollahi, Moharram, 2018. "Designing a whole-farm revenue insurance for agricultural crops in Zanjan province of Iran," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 17(02), January.
    10. Janzen, Matthew & Coatney, Kalyn T. & Rivera, Daniel & Harri, Ardian & Riley, John Michael & Busby, Darrell & Groves, Matt, "undated". "Fed Cattle Marketing: A Field Experiment," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252844, Southern Agricultural Economics Association.
    11. Joshua G. Maples & Jada M. Thompson & John D. Anderson & David P. Anderson, 2021. "Estimating COVID‐19 Impacts on the Broiler Industry," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(1), pages 315-328, March.
    12. Davis, Todd & Anderson, John A. & Smith, Nathan, 2014. "Evaluating the Impact of Proposed Farm Bill Programs with Crop Insurance for Southern Crops," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162409, Southern Agricultural Economics Association.
    13. Octavio A. Ramirez & Carlos A. Carpio, 2012. "Premium estimation inaccuracy and the actuarial performance of the US crop insurance program," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 117-133, May.
    14. Wang, Yang & Barnett, Barry J. & Coble, Keith H. & Harri, Ardian, 2012. "Yield Aggregation Impacts on a “Deep Loss” Systemic Risk Protection Program," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124875, Agricultural and Applied Economics Association.
    15. Lichtenberg, Erik & Iglesias, Eva, 2022. "Index insurance and basis risk: A reconsideration," Journal of Development Economics, Elsevier, vol. 158(C).
    16. Davis, Todd D. & Anderson, John D. & Young, Robert E., 2013. "Evaluating the Interaction between Farm Programs with Crop Insurance and Producers' Risk Preferences," 2013 AAEA: Crop Insurance and the Farm Bill Symposium 156753, Agricultural and Applied Economics Association.

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    Agricultural Finance; Risk and Uncertainty;

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