Crop Yield Expectation Stochastic Process with Beta Distribution as Limit, A

David A. Hennessy

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: The modeling of price risk in the theory and practice of commodity risk management has been developed far beyond that of crop yield risk. This is in large part due to the use of plausible stochastic price processes. We use the Pólya urn to identify and develop a model of the crop yield expectation stochastic process over a growing season. The process allows a role for agronomic events, such as growing degree days. The model is internally consistent in adhering to the martingale property. The limiting distribution is the beta, commonly used in yield modeling. By applying binomial tree analysis, we show how to use the framework to study hedging decisions and crop valuation.

Keywords: crop insurance; growing degree days; martingale; Pólya urn; stochastic process. (search for similar items in EconPapers)
Date: 2009-11-06
View list of references

Downloads: (external link)
http://www.econ.iastate.edu/research/webpapers/paper_13120.pdf (application/pdf)

Related works:
Working Paper: Crop Yield Expectation Stochastic Process with Beta Distribution as Limit, A (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:13120

Access Statistics for this paper

More papers in Staff General Research Papers from Iowa State University, Department of Economics
Address: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Contact information at EDIRC.
Series data maintained by Stephanie Bridges ().