Title

Livestock Revenue Insurance

Campus Units

Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

4-25-2001

Journal or Book Title

Journal of Futures Markets

Volume

21

Issue

6

First Page or Article ID Number

553

Last Page

580

DOI

10.1002/fut.1603.

Abstract

This study outlines several possible structures for livestock revenue insurance. The policies take the form of an exotic option—an Asian basket option. The actuarially fair premiums for these policies are equal to the prices of the options they represent. Due to the complexity of pricing Asian basket options, we have combined two techniques for pricing options to reach the actuarially fair premiums. Projected premiums, producer welfare, and program efficiency are evaluated for the insurance products and existing market tools. Using efficiency ratios and certainty equivalent returns, we compare the insurance policies to strategies involving existing futures and options.

Comments

This working paper was published as Hart, Chad E., Bruce A. Babcock and Dermot J. Hayes, "Livestock Revenue Insurance," The Journal of Futures Markets 21 (2001): 553–580, doi:10.1002/fut.1603.