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Hedging Crop Risk With Yield Insurance Futures And Options

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  • Mahul, Olivier
  • Vermersch, Dominique

Abstract

This paper analyses the optimal hedging decisions for risk-averse producers facing crop risk, assuming crop yield insurance futures and options can be used. The first-best optimal hedge requires a futures position or an option position proportionate to the individual beta depending on whether the financial markets are perceived unbiased or biased. Using yield data for a sample of wheat producers in France, the producers' hedge ratios are derived. These new hedging instruments are more effective to reduce farm yield variability than the individual yield contracts, except if the individual yield guarantee is at least equal to the individual average yield.

Suggested Citation

  • Mahul, Olivier & Vermersch, Dominique, 1999. "Hedging Crop Risk With Yield Insurance Futures And Options," 1999 Annual meeting, August 8-11, Nashville, TN 21672, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea99:21672
    DOI: 10.22004/ag.econ.21672
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    References listed on IDEAS

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    1. Harvey Lapan & Giancarlo Moschini & Steven D. Hanson, 1991. "Production, Hedging, and Speculative Decisions with Options and Futures Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(1), pages 66-74.
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    4. Garcia, Philip & Adam, Brian D. & Hauser, Robert J., 1994. "The Use Of Mean-Variance For Commodity Futures And Options Hedging Decisions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(1), pages 1-14, July.
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    7. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-430, June.
    8. Olivier Mahul, 1999. "Optimum area yield crop insurance," Post-Print hal-01952090, HAL.
    9. Mario J. Miranda, 1991. "Area-Yield Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(2), pages 233-242.
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    11. Olivier Mahul, 1999. "Optimum Area Yield Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 75-82.
    12. Mario J. Miranda & Joseph W. Glauber, 1997. "Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 206-215.
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    Cited by:

    1. D. Vermersch & . Commission Du Génie Biomoléculaire,paris (fra), 1999. "La substitution des facteurs de production et le développement des consommations intermédiaires, déterminismes et tendances d'avenir," Post-Print hal-02282247, HAL.

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