Purpose –The purpose of this paper is to provide a general discussion of how techniques from financial engineering can be used to investigate the economic costs of farm programs and to aid in the design of new financial products to implement margin protection for dairy farmers. Specifically...

Purpose –The purpose of this paper is to determine the extent of risk rationing among potential rural borrowers in Mexico and China. Design/methodology/approach –Using primary survey data from 730 farm households in the Shaanxi province of China and from 372 farmers in northeastern Mexico,...

We derive a general equilibrium linear relationship between the market prices of risks and market risk aversion under a continuous time stochastic volatility model completed by liquidly traded options. The relation is robust as it is valid for both endowment and production economies, and for...

Purpose – Firms facing significant income volatility can often suffer from downside risk such that return on assets is insufficient to meet fixed financial obligations. The purpose of this paper is to provide a prescriptive credit solution for small businesses facing exogenous income risk....

Purpose – Motivated by recent congressional interest in eradicating government sponsored enterprises (GSE), the purpose of this paper is to develop a framework to price the implicit government guarantee embedded in the bonds issued by the Farm Credit System. Design/methodology/approach – The...

This paper presents a model and framework for pricing degree‐day weather derivatives when the weather variable is a non‐traded asset. Using daily weather data from 1840S1996, it is shown that a degree‐day weather index exhibits stable volatility and satisfies the random walk hypothesis....

This paper reviews various optimization approaches used to address a variety of issues related to risk in agricultural finance and farm management. The central focus is in the Markowitz mean‐variance model, which represents the classical approach to balancing risk and returns in an...

The increasing demand for highly differentiated products in today’s enterprise economies has emphasized the small firms’ comparative advantage over larger firms. Business mortality rates, however, remained very high among more vulnerable start‐up businesses still in their earliest stage of...

Asymmetric information in the form of moral hazard and adverse selection can result in sizable program costs for government‐provided crop insurance plans. We present a methodology and illustrative simulations to show how these two types of information problems interact in a way to create...

This paper outlines approaches to valuating weather‐linked bonds, mortgages, and operating lines of credit. Using historical data from weather stations in Adrmore, Oklahoma, and Ithaca, New York, indemnities and insurance premiums are computed for specific‐event rainfall insurance. The main...