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Title: Infrequent Shocks and Rating Revenue Insurance: A Contingent Claims Approach
Authors: Richards, Timothy J.
Manfredo, Mark R.
Keywords: Black-Scholes
contingent claim
option pricing
Issue Date: 2003-08
Abstract: Revenue insurance represents an important new risk management tool for agricultural producers. While there are many farm-level products, Group Risk Income Protection (GRIP) is an area-based alternative. Insurers set premium rates for GRIP on the assumption of a continuous revenue distribution, but discrete events may cause the actual value of insurance to differ by a significant amount. This study develops a contingent claims approach to determining the error inherent in ignoring these infrequent events in rating GRIP insurance. An empirical example from the California grape industry demonstrates the significance of this error and suggests an alternative method of determining revenue insurance premiums.
Institution/Association: Journal of Agricultural and Resource Economics>Volume 28, Number 02, August 2003
Total Pages: 19
Language: English
From Page: 233
To Page: 251
Collections:Volume 28, Number 02, August 2003

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