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Livestock Revenue Insurance

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Author Info
Hart, Chad E.
Babcock, Bruce A.
Hayes, Dermot J.

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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.

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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 1932.

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Date of creation: 19 Jan 2001
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Publication status: Published in The Journal of Futures Markets, 2001, Vol. 21, No. 6, pp. 553-80.
Handle: RePEc:isu:genres:1932

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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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. 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 182-88, March. [Downloadable!] (restricted)
  2. David A. Hennessy & Bruce A. Babcock & Dermot J. Hayes, 1997. "Budgetary and Producer Welfare Effects of Revenue Insurance, The," Center for Agricultural and Rural Development (CARD) Publications 97-wp180, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  3. Jeffrey R. Stokes & William I. Nayda, 2003. "The Pricing of Revenue Assurance: Reply," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(4), pages 1066-1069, November. [Downloadable!] (restricted)
  4. 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(03), pages 377-389, September. [Downloadable!]
  5. Levy, Edmond, 1992. "Pricing European average rate currency options," Journal of International Money and Finance, Elsevier, vol. 11(5), pages 474-491, October. [Downloadable!] (restricted)
  6. Babcock, Bruce A. & Hennessy, David, 1994. "Input Demand Under Yield and Revenue Insurance," Staff General Research Papers 794, Iowa State University, Department of Economics. [Downloadable!]
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  7. Babcock, Bruce A. & Choi, E.K. & Feinerman, Eli, 1993. "Risk And Probability Premiums For Cara Utility Functions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July. [Downloadable!]
  8. Hennessy, David A. & Babcock, Bruce A. & Hayes, Dermot J., 1997. "Budgetary and Producer Welfare Effects of Revenue Insurance," Staff General Research Papers 1100, Iowa State University, Department of Economics. [Downloadable!]
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(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. Nick D. Paulson & Bruce A. Babcock & Chad E. Hart & Dermot J. Hayes, 2004. "Insuring Uncertainty in Value-Added Agriculture: Ethanol Production," Food and Agricultural Policy Research Institute (FAPRI) Publications 04-wp360, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University. [Downloadable!]
    Other versions:
  2. Turvey, Calum G., 2003. "Conceptual Issues In Livestock Insurance," Working Papers 18171, Rutgers University, Food Policy Institute. [Downloadable!]
  3. Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2003. "Insuring Eggs in Baskets," Food and Agricultural Policy Research Institute (FAPRI) Publications 03-wp339, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University. [Downloadable!]
    Other versions:
  4. Shao, Renyuan & Roe, Brian, 2002. "The Design And Pricing Of Fixed And Moving Window Contracts: An Application Of Asian-Basket Option Pricing Methods To The Hog Finishing Sector," 2002 Annual meeting, July 28-31, Long Beach, CA 19823, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  5. Belasco, Eric J., 2008. "The Role of Price Risk Management in Mitigating Fed Cattle Profit Exposure," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(3), December. [Downloadable!]
  6. Paulson, Nicholas D. & Babcock, Bruce A. & Hart, Chad E. & Hayes, Dermot J., 2008. "An Insurance Approach to Risk Management in the Ethanol Industry," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(1), April. [Downloadable!]
    Other versions:
  7. Hart, Chad E. & Hayes, Dermot J. & Babcock, Bruce A., 2003. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Staff General Research Papers 10669, Iowa State University, Department of Economics.
    Other versions:
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