HEDGING WITH INDIVIDUAL AND INDEX-BASED CONTRACTS

Olivier Mahul

No 22007, 2003 Annual meeting, July 27-30, Montreal, Canada from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: We examine the optimal hedging strategy with an individual insurance policy, sold at an unfair price, and a fair contract based on an index, which is imperfectly correlated with the individual loss. The tradeoff between transaction costs and basis risk is first analyzed in the expected utility framework in order to highlight the role of the agent's attitude toward risk, and then in the linear mean-variance model to stress the importance of the degree of correlation between the individual loss and the index.

Keywords: Agribusiness (search for similar items in EconPapers)
Pages: 22
Date: 2003
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea03:22007

DOI: 10.22004/ag.econ.22007

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