Infrequent Shocks and Rating Revenue Insurance: A Contingent Claims Approach

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.


Issue Date:
2003-08
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/31094
Published in:
Journal of Agricultural and Resource Economics, Volume 28, Number 2
Page range:
233-251
Total Pages:
19




 Record created 2017-04-01, last modified 2017-08-24

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