The Pricing of Revenue Assurance

Jeffrey Stokes, William I. Nayda and Burton English

American Journal of Agricultural Economics, 1997, vol. 79, issue 2, 439-451

Abstract: A theoretical model to value gross revenue assurance under one of the popular proposals facing U.S. policy makers is developed. The approach makes use of a fundamental paradigm of asset valuation and stochastic calculus. Because farm-level gross revenue is not a traded asset, equilibrium arguments must be made to specify the partial differential equation characterizing the value of the assurance. An example solution is presented under the assumption of lognormally distributed gross revenue. County-level data for a variety of crops are used to examine empirically the pricing ability of the model. Copyright 1997, Oxford University Press.

Date: 1997
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