Agricultural Finance Revenue Futures Contract

Abstract

To respond to financial compound risk of farmers, two multiplicative derivative contracts, called respectively revenue futures contract and revenue put option, are proposed. The paper presents the theoretical management strategy of such a contract under the constraint that price and crop yield futures contracts are quoted.A financial intermediary can thus develop a risk-free management strategy to build a revenue futures contract. This paper opens perspectives on risk management for farmers, on completeness of markets and on new financial intermediation.

A private management strategy for the crop yield insurer: A theoretical approach and tests

“…As proved by Guinvarc'h et al (2004) in the same framework, it turns out under P * that S 1 t = β i F t Y m and that…”

“…1 But, in addition, their work assesses that, even in ideal conditions, double hedging is not able to eliminate the risk generated by the covariance between price and yield. As opposed to this discrete time strategy, Guinvarc'h et al (2004) propose a continuous management strategy able to eliminate this "covariance" risk component. It is based on the replicating portfolio of the revenue futures contract and uses both the crop yield futures contract and the price futures contract.…”