Dermot J. Hayes, Sergio H. Lence and Chuck Mason
This study estimates the probability density function of the government’s net income from reinsuring crop insurance for corn, wheat, and soybeans. Based on 1997 data, it is…
Abstract
This study estimates the probability density function of the government’s net income from reinsuring crop insurance for corn, wheat, and soybeans. Based on 1997 data, it is estimated there is a 5% probability that the government will need to reimburse at least $1 billion to insurance companies, and that the fair value of the government’s reinsurance services to insurance firms equals $78.7 million. In addition, various hedging strategies are examined for their potential to reduce the government’s reinsurance risk. The risk reduction achievable by hedging is appreciable, but use of derivative contracts alone is clearly no panacea.
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Chuck Mason, Dermot J. Hayes and Sergio H. Lence
This study develops a method to estimate the probability density function of the Federal Risk Management Agency’s (RMA’s) net income from reinsuring crop insurance for corn…
Abstract
This study develops a method to estimate the probability density function of the Federal Risk Management Agency’s (RMA’s) net income from reinsuring crop insurance for corn, wheat, and soybeans. When calibrated using 1997 data, results from the advocated method show that in 1997 there was a 5% probability RMA would have had to reimburse at least $1 billion to insurance companies, and the fair value of RMA’s insurance services to insurance firms in 1997 was $78.7 million.
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Ashok K. Mishra and Sergio H. Lence
Producers and lenders seek to avoid agricultural production‐related risks through various managerial and institutional mechanisms. For individual farmers and agribusinesses, risk…
Abstract
Producers and lenders seek to avoid agricultural production‐related risks through various managerial and institutional mechanisms. For individual farmers and agribusinesses, risk management involves choosing among alternatives for reducing the effects of risk on the firm, thereby affecting the firm’s welfare position. Risk management often requires the evaluation of tradeoffs between changes in risk, expected returns, entrepreneurial freedom, and other factors. Research on risk management issues in agriculture has been among the main topics of interest of the Regional Research Committee for Financing Agriculture in a Changing Environment: Macro, Market, Policy, and Management Issues, and its predecessors. This paper reviews and summarizes much of the Committee’s work and provides a discussion of related topics of interest for prospective future research.
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Wenwen Xi, Dermot Hayes and Sergio Horacio Lence
The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical…
Abstract
Purpose
The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical realized variance and the corresponding risk-neutral expected variance.
Design/methodology/approach
The authors compute variance risk premiums using historical derivatives data. The authors use regression analysis and time series econometrics methods, including EGARCH and the Kalman filter, to analyze variance risk premiums.
Findings
There are moderate commonalities in variance within the agricultural sector, but fairly weak commonalities between the agricultural and the equity sectors. Corn and soybean variance risk premia in dollar terms are time-varying and correlated with the risk-neutral expected variance. In contrast, agricultural commodity variance risk premia in log return terms are more likely to be constant and less correlated with the log risk-neutral expected variance. Variance and price (return) risk premia in agricultural markets are weakly correlated, and the correlation depends on the sign of the returns in the underlying commodity.
Practical implications
Commodity variance (i.e. volatility) risk cannot be hedged using futures markets. The results have practical implications for US crop insurance programs because the implied volatilities from the relevant options markets are used to estimate the price volatility factors used to generate premia for revenue insurance products such as “Revenue Protection” and “Revenue Protection with Harvest Price Exclusion.” The variance risk premia found implies that revenue insurance premia are overpriced.
Originality/value
The empirical results suggest that the implied volatilities in corn and soybean futures market overestimate true expected volatility by approximately 15 percent. This has implications for derivative products, such as revenue insurance, that use these implied volatilities to calculate fair premia.
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Globalisation is generally defined as the “denationalisation of clusters of political, economic, and social activities” that destabilize the ability of the sovereign State to…
Abstract
Globalisation is generally defined as the “denationalisation of clusters of political, economic, and social activities” that destabilize the ability of the sovereign State to control activities on its territory, due to the rising need to find solutions for universal problems, like the pollution of the environment, on an international level. Globalisation is a complex, forceful legal and social process that take place within an integrated whole with out regard to geographical boundaries. Globalisation thus differs from international activities, which arise between and among States, and it differs from multinational activities that occur in more than one nation‐State. This does not mean that countries are not involved in the sociolegal dynamics that those transboundary process trigger. In a sense, the movements triggered by global processes promote greater economic interdependence among countries. Globalisation can be traced back to the depression preceding World War II and globalisation at that time included spreading of the capitalist economic system as a means of getting access to extended markets. The first step was to create sufficient export surplus to maintain full employment in the capitalist world and secondly establishing a globalized economy where the planet would be united in peace and wealth. The idea of interdependence among quite separate and distinct countries is a very important part of talks on globalisation and a significant side of today’s global political economy.
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Peace is a very precious commodity. It is being concealed by a number of other goals. All the great living religions‐revealed or non‐revealed are strongly committed to peace. This…
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Peace is a very precious commodity. It is being concealed by a number of other goals. All the great living religions‐revealed or non‐revealed are strongly committed to peace. This is even more true for the three Abrahamic faiths‐Judaism, Christianity and finally Islam. Unfortunately, the history of world events during last few decades attests to the fact that there exist more suspicions, distrusts, enmity, hatred and anger among the believers belonging to these three faiths than the others. The reason being the primary goals pertaining to political, socio‐cultural and economic pursued by the Christian‐dominated West are predominated by the goal of supremacy and domination and not of coexistence and cooperation. In pursuing these goals the Christian including the Jewish dominated West are pursuing the philosophy of moneytheism, liberalism, modernism and secularism. The Muslims living either in their own lands or in the West being the victims of their own despotic and autocratic rulers and their Western sympathisers are forced to take recourse to equally unjust methods branded as terrorism. Having realised the need for peaceful coexistence, this paper advocates for a thorough transformation as far as the basic goals are concerned. In order to achieve this, the existing academic, cultural and religious institutions and media need to undergo transformation based on an acceptable moral education on behaviours, norms and practices.