Hedging price risk in the presence of crop yield and revenue insurance

Hedging Price Risk in the Presence of Crop Yield and Revenue Insurance by

The demand for hedging against price uncertainty in the presence of crop yield and revenue insurance contracts is examined for French wheat farms. The rationale for the use of options in addition to futures is first highlighted through the characterization of the first-best hedging strategy in the expected utility framework. It is then illustrated using numerical simulations. The presence of op...

Hedging Price Risk in the Presence of Crop Yield and Revenue Insurance

The demand for hedging against price uncertainty in the presence of crop yield and revenue insurance contracts is examined for French wheat farms. The rationale for the use of options in addition to futures is first highlighted through the characterization of the first-best hedging strategy in the expected utility framework. It is then illustrated using numerical simulations. The presence of op...

Crop Revenue and Yield Insurance Demand: A Subjective Probability Approach

On the Premium for Revenue Insurance under Joint Price and Yield Risk

This note provides two results pertaining to the pricing of agricultural revenue insurance contracts under joint price and yield risk. First, a weakening of the concordance ordering is used to sign the effect of greater dependence between the multiplicative risks (price and yield) on the expected indemnity payment. Second, sufficient conditions are found when the premium rate for revenue insura...

Systemic Risk in U.S. Crop and Revenue Insurance Programs

The present study estimates the probability density function of the Federal Risk Management Agency’s (RMA) net income from reinsuring crop insurance for corn, wheat, and soybeans. Based on 1997 data, it is estimated that there is a 5 percent probability that RMA will need to reimburse at least $1 billion to insurance companies, and that the fair value of RMA’s reinsurance services to insurance ...