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Commodity Linked Credit: A Risk Management Instrument for the Agrarians in India

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  • Shee, Apurba
  • Turvey, Calum G.

Abstract

This research analyzes daily commodity spot prices and designs risk contingent structured financial instruments as a means to mitigate business and financial risk by reducing debt obligations depending on the embedded commodity options whose payoffs are linked with commodity price fluctuations. Models are developed for operating loans and farm mortgages. The results show that the distributions with the embedded option have higher probability of greater returns and the embedded option with the repayment contingent on the price fluctuation reduces the downside risk of the return from the investment.

Suggested Citation

  • Shee, Apurba & Turvey, Calum G., 2008. "Commodity Linked Credit: A Risk Management Instrument for the Agrarians in India," 2007 Agricultural and Rural Finance Markets in Transition, October 4-5, 2007, St. Louis, Missouri 48139, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    • Handle: RePEc:ags:nc1007:48139
    DOI: 10.22004/ag.econ.48139
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    References listed on IDEAS

    as
    1. Myers, Robert J, 1992. "Incomplete Markets and Commodity-Linked Finance in Developing Countries," The World Bank Research Observer, World Bank, vol. 7(1), pages 79-94, January.
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    4. Turvey, Calum G. & Chantarat, Sommarat, 2006. "Weather-Linked Bonds," 2006 Agricultural and Rural Finance Markets in Transition, October 2-3, 2006, Washington, DC 133091, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    5. Calum G. Turvey, 2006. "Managing food industry business and financial risks with commodity-linked credit instruments," Agribusiness, John Wiley & Sons, Ltd., vol. 22(4), pages 523-545.
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    Keywords

    Agricultural Finance; Risk and Uncertainty;

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