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Managing economic risk caused by insects: bug options

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Author Info

  • Timothy J. Richards
  • James Eaves
  • Valerie Fournier
  • S.E. Naranjo
  • C.-C. Chu
  • T.J. Henneberry

Abstract

The market for insuring insect damage is far from complete. This study introduces a new type of derivative instrument-insect derivatives-that provide growers a market-based means of transferring insect risk to speculators or others who may profit from higher insect populations. A risk-neutral valuation model is developed and applied to Bemisia tabaci population data. Economic simulation models show how insect derivatives can improve risk-return results for a representative cotton farm in the Imperial Valley of California. The results suggest that insect derivatives may become important risk management tools for a wide range of growers.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

Volume (Year): 66 (2006)
Issue (Month): 1 (May)
Pages: 27-45

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Handle: RePEc:eme:afrpps:v:66:y:2006:i:1:p:27-45

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Web page: http://www.emeraldinsight.com

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Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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Related research

Keywords: Bemisia tabaci; Cotton; Derivatives; Forecasting models; Insects; Insurance; Risk management;

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Cited by:
  1. Calum G. Turvey, 2010. "Biography: Kiyosi Itô and his influence on the study of agricultural finance and economics," Agricultural Finance Review, Emerald Group Publishing, vol. 70(1), pages 5-20, May.
  2. Turvey, Calum G. & Kong, Rong & Belltawn, Burgen, 2009. "Weather Risk and the Viability of Weather Insurance In Western China," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49362, Agricultural and Applied Economics Association.

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