Expanding on Basis Risk Estimates for Pasture, Rangeland, and Forage Insurance

Ryan Feuz, Ryan Bosworth, Ryan Larsen, Royce Larsen and Sean Klein

Journal of Applied Farm Economics, 2023, vol. 06, issue 01

Abstract: Basis risk or residual risk arising from disparity between an index’s estimate of losses and actual losses is inherent in index-based insurance products. We approximate basis risk as the false negative probability (FNP) within pasture, rangeland, and forage (PRF) rainfall index insurance for the south-central coastal region of California. We estimate the FNP on average that at least one of two selected coverage intervals will fail to provide an indemnity when a loss is realized at 48%. The average FNP is reduced to only 11% when considering whether both selected intervals fail to provide an indemnity when a loss is realized.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pujafe:346810

DOI: 10.22004/ag.econ.346810

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