Commodity Linked Credit: A Risk Management Instrument for the Agrarians in India

Apurba Shee and Calum Turvey

No 48139, 2007 Agricultural and Rural Finance Markets in Transition, October 4-5, 2007, St. Louis, Missouri from Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition

Abstract: This research analyzes daily commodity spot prices and designs risk contingent structured financial instruments as a means to mitigate business and financial risk by reducing debt obligations depending on the embedded commodity options whose payoffs are linked with commodity price fluctuations. Models are developed for operating loans and farm mortgages. The results show that the distributions with the embedded option have higher probability of greater returns and the embedded option with the repayment contingent on the price fluctuation reduces the downside risk of the return from the investment.

Keywords: Agricultural Finance; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 26
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:ags:nc1007:48139

DOI: 10.22004/ag.econ.48139

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