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Managing Economic Risk from Invasive Species: Bug Options

  • Fournier, Valerie
  • Manfredo, Mark R.
  • Richards, Timothy J.
  • Eaves, James

Invasive insect species cause billions of dollars of direct and indirect damage to U.S. crops each year. The market for insuring insect damage is, however, far from complete. The objective of this study is to design and value insect derivatives, or "bug options," which would offer growers a market-based means for transferring risk of pest damage to speculators or others who may profit from higher insect populations. A bug option valuation model is developed and applied to Bemesia tabaci infestation in cotton. The results show that insect derivatives may become important risk management tools for a wide range of growers.

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File URL: http://purl.umn.edu/19553
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2005 Annual meeting, July 24-27, Providence, RI with number 19553.

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Date of creation: 2005
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Handle: RePEc:ags:aaea05:19553
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  1. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-84, March.
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  5. Naik, Vasanttilak & Lee, Moon, 1990. "General Equilibrium Pricing of Options on the Market Portfolio with Discontinuous Returns," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 493-521.
  6. Lichtenberg, Erik & Zilberman, David, 1988. "Efficient Regulation of Environmental Health Risks," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 167-78, February.
  7. David Sunding & Joshua Zivin, 2000. "Insect Population Dynamics, Pesticide Use, and Farmworker Health," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 527-540.
  8. Babcock, Bruce A. & Lichtenberg, E. & Zilberman, David, 1992. "Impact of Damage Control and Quality of Output: Estimating Pest Control Effectiveness," Staff General Research Papers 10589, Iowa State University, Department of Economics.
  9. Peter Alaton & Boualem Djehiche & David Stillberger, 2002. "On modelling and pricing weather derivatives," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(1), pages 1-20.
  10. Carter, Colin A. & Chalfant, James A. & Goodhue, Rachael E., 2004. "Invasive Species In Agriculture: A Rising Concern," Western Economics Forum, Western Agricultural Economics Association, vol. 3(02), December.
  11. Philippe Jorion, 1988. "On Jump Processes in the Foreign Exchange and Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 1(4), pages 427-445.
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