RELIABILITY OF OPTIONS MARKETS FOR CROP REVENUE INSURANCE RATING
By: Buschena, David E.; Ziegler, Lee
Buschena, David E.; Ziegler, Lee, RELIABILITY OF OPTIONS MARKETS FOR CROP REVENUE INSURANCE RATING, Journal of Agricultural and Resource Economics, Volume 24, Issue 2, December 1999, Pages 398-423
Revenue insurance, only recently introduced for major crops in the U.S., has captured a considerable share of the multiple-peril insurance market. This study evaluates the predictive reliability of using price distributions inferred from options markets to rate revenue insurance products. We find for periods early in the crop growing season that price distributions inferred from options trades offer greater reliability than distributions based on historical futures trades. Options-based price distributions should receive further consideration in crop revenue insurance rating, but current administrative constraints must be considered.