Infrequent shocks and rating revenue insurance: A contingent claims approach

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5 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)233-251
Number of pages19
JournalJournal of Agricultural and Resource Economics
Volume28
Issue number2
StatePublished - Aug 1 2003

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Keywords

  • Black-Scholes
  • Contingent claim
  • Grapes
  • Insurance
  • Jump-diffusion
  • Option pricing

ASJC Scopus subject areas

  • Animal Science and Zoology
  • Agronomy and Crop Science
  • Economics and Econometrics

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