Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution

David Hennessy

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: The use of plausible stochastic price processes in price risk analysis has allowed advances not seen in crop yield risk analysis. This study develops a stochastic process for yield modeling and risk management. The Pólya urn process is an internally consistent dynamic representation of yield expectations over a growing season that accommodates agronomic events such as growing degree days. The limiting distribution is the commonly used beta distribution. Binomial tree analysis of the process allows us to explore hedging decisions and crop valuation. The method is empirically flexible to accommodate alternative assumptions on the growing environment, such as intra-season input decisions.

Keywords: crop insurance; crop abandonment; stochastic process; derivative analsysis; growing degree days (search for similar items in EconPapers)
Date: 2012-03-29
New Economics Papers: this item is included in nep-agr and nep-ias
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Published in Journal of Agricultural and Resource Economics 2011, vol. 36 no. 1, pp. 177-191

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Related works:
Journal Article: Modeling Stochastic Crop Yield Expectations with a Limiting Beta Distribution (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:35020

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