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Agricultural Economics

Iowa State University

CARD Working Papers

Livestock

Publication Year

Articles 1 - 2 of 2

Full-Text Articles in Insurance

Insuring Eggs In Baskets, Chad E. Hart, Dermot J. Hayes, Bruce A. Babcock Jul 2003

Insuring Eggs In Baskets, Chad E. Hart, Dermot J. Hayes, Bruce A. Babcock

CARD Working Papers

The vast majority of crop and revenue insurance policies sold in the United States are single-crop policies that insure against low yields or low revenues for each crop grown on a particular farm. This practice of insuring one crop at a time runs counter to the traditional risk management practice of diversifying across several enterprises to avoid putting all of ones eggs in a single basket. This paper examines the construction of whole-farm crop revenue insurance programs to include livestock. The whole-farm insurance product covers crop revenues from corn and soybeans and livestock revenues from hog production. The results show ...


Livestock Revenue Insurance, Chad E. Hart, Bruce A. Babcock, Dermot J. Hayes Jan 2001

Livestock Revenue Insurance, Chad E. Hart, Bruce A. Babcock, Dermot J. Hayes

CARD Working Papers

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.