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Designing Catastrophe Bonds to Securitize Systemic Risks in Agriculture: The Case of Georgia Cotton

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Author Info
Vedenov, Dmitry V.
Epperson, James E.
Barnett, Barry J.

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Abstract

This article makes an initial attempt to design catastrophe (CAT) bond products for agriculture and examines the potential of these instruments as mechanisms for transferring agricultural risks from insurance companies to investors/speculators in the global capital market. The case of Georgia cotton is considered as a specific example. The CAT bond contracts are based on percentage deviations of realized state average yields relative to the long-run average. The contracts are priced using historical state-level cotton yield data. The principal finding of the study is that the proposed CAT bonds demonstrate potential as risk transfer mechanisms for crop insurance companies.

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File URL: http://purl.umn.edu/8610
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Publisher Info
Article provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.

Volume (Year): 31 (2006)
Issue (Month): 02 (August)
Pages:
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Handle: RePEc:ags:jlaare:8610

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Web page: http://waeaonline.org/
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Related research
Keywords: CAT bonds; catastrophe bond pricing; catastrophe insurance; disaster risk; reinsurance; risk securitization; Risk and Uncertainty;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Barnett, Barry J., 2003. "The Federal Crop Insurance Program: Opportunities And Challenges," Agricultural Outlook Forum 2003 33135, United States Department of Agriculture, Agricultural Outlook Forum. [Downloadable!]
  2. Neil A. Doherty, 1997. "Financial Innovation in the Management of Catastrophe Risk," Center for Financial Institutions Working Papers 98-12, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  3. Martin, Steven W. & Barnett, Barry J. & Coble, Keith H., 2001. "Developing And Pricing Precipitation Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(01), July. [Downloadable!]
  4. Vedenov, Dmitry V. & Barnett, Barry J., 2004. "Efficiency of Weather Derivatives as Primary Crop Insurance Instruments," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(03), December. [Downloadable!]
  5. Skees, Jerry & Gober, Stephanie & Varangis, Panos & Lester, Rodney & Kalavakonda, Vijay, 2001. "Developing rainfall-based index insurance in Morocco," Policy Research Working Paper Series 2577, The World Bank. [Downloadable!]
  6. Barnett, Barry J. & Black, J. Roy & Hu, Yingyao & Skees, Jerry R., 2005. "Is Area Yield Insurance Competitive with Farm Yield Insurance?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 30(02), August. [Downloadable!]
  7. Neil A. Doherty, 1997. "Financial Innovation in the Management of Catastrophe Risk," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(3), pages 84-95. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Xu, Wei & Odening, Martin & Musshoff, Oliver, 2008. "Optimal Design of Weather Bonds," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6781, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Mitchell, Paul D. & Knight, Thomas O., 2008. "Economic Analysis of Supplemental Deductible Coverage as Recommended in the USDA's 2007 Farm Bill Proposal," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(1), April. [Downloadable!]
    Other versions:
  3. Coble, Keith H. & Barnett, Barry J., 2008. "Implications of Integrated Commodity Programs and Crop Insurance," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(02), August. [Downloadable!]
  4. Epperson, James E., 2008. "Securitizing peanut production risk with catastrophe (CAT) bonds," Faculty Series 44512, University of Georgia, Department of Agricultural and Applied Economics. [Downloadable!]
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This page was last updated on 2009-11-26.

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