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Spatial-Temporal Model of Insect Growth, Diffusion and Derivative Pricing

T.J. Richards, J. Eaves, M. Manfredo, S.E. Naranjo, C.-C. Chu and T.J. Henneberry

American Journal of Agricultural Economics, 2008, vol. 90, issue 4, 962-978

Abstract: Insect derivatives represent an important innovation in specialty crop risk management. An active over-the-counter market in insect derivatives will require a transparent pricing method. This paper develops an econometric model of the spatio-temporal process underlying a particular insect population and develops a pricing model based on this process. We show that insect derivatives can play an important risk management role in mitigating B. tabaci (whitefly) damage in cotton. Beyond developing a new risk management instrument, the key methodological contribution of this paper lies in pricing derivatives with stochastic properties in both space and time dimensions. Copyright 2008, Oxford University Press.

Date: 2008
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Handle: RePEc:oup:ajagec:v:90:y:2008:i:4:p:962-978