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Livestock Revenue Insurance

Author

Listed:
  • Hart, Chad E.
  • Babcock, Bruce A.
  • Hayes, Dermot J.

Abstract

(Revised) This paper outlines several possible structures for livestock revenue insurance. The policies take the form of an exotic option--an Asian basket option. The actuarially fair premiums for these policies are equal to the prices of the options they represent. Due to the complexity of pricing Asian basket options, we have combined two techniques for pricing options to reach the actuarially fair premiums. Projected premiums, producer welfare, and program efficiency are evaluated for the insurance products and existing market tools. Using efficiency ratios and certainty equivalent returns, we compare the insurance policies to strategies involving existing futures and options.

Suggested Citation

  • Hart, Chad E. & Babcock, Bruce A. & Hayes, Dermot J., 2001. "Livestock Revenue Insurance," Staff General Research Papers Archive 1932, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:1932
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    References listed on IDEAS

    as
    1. Babcock, Bruce A. & Choi, E. Kwan & Feinerman, Eli, 1993. "Risk And Probability Premiums For Cara Utility Functions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(1), pages 1-8, July.
    2. 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.
    3. Bruce A. Babcock & David A. Hennessy, 1996. "Input Demand under Yield and Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 416-427.
    4. 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.
    5. Moshe Arye Milevsky & Steven E. Posner, 1999. "Asian Options, The Sum Of Lognormals, And The Reciprocal Gamma Distribution," World Scientific Book Chapters, in: Marco Avellaneda (ed.), Quantitative Analysis In Financial Markets Collected Papers of the New York University Mathematical Finance Seminar, chapter 7, pages 203-218, World Scientific Publishing Co. Pte. Ltd..
    6. Levy, Edmond, 1992. "Pricing European average rate currency options," Journal of International Money and Finance, Elsevier, vol. 11(5), pages 474-491, October.
    7. Alziary, Benedicte & Decamps, Jean-Paul & Koehl, Pierre-Francois, 1997. "A P.D.E. approach to Asian options: analytical and numerical evidence," Journal of Banking & Finance, Elsevier, vol. 21(5), pages 613-640, May.
    8. Calum G. Turvey & Vincent Amanor-Boadu, 1989. "Evaluating Premiums for a Farm Income Insurance Policy," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 37(2), pages 233-247, July.
    9. Turnbull, Stuart M. & Wakeman, Lee Macdonald, 1991. "A Quick Algorithm for Pricing European Average Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(3), pages 377-389, September.
    10. Calm G. Turvey, 1992. "An Economic Analysis of Alternative Farm Revenue Insurance Policies," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 40(3), pages 403-426, November.
    11. Holthausen, Duncan M, 1981. "A Risk-Return Model with Risk and Return Measured as Deviations from a Target Return," American Economic Review, American Economic Association, vol. 71(1), pages 182-188, March.
    12. Jeffrey R. Stokes & William I. Nayda & Burton C. English, 1997. "The Pricing of Revenue Assurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 439-451.
    13. Allan W. Gray & James W. Richardson & Jackie McClaskey, 1995. "Farm-Level Impacts of Revenue Assurance," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 17(2), pages 171-183.
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