Diversifying Systemic Risk in Agriculture: A Copula-based Approach

Xiaoguang Feng and Dermot Hayes

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: One of the biggest obstacles for the development of private crop insurance markets is the systemic risk inherent in crop yields. Driven by spatially correlated weather events, crop losses are highly correlated within a certain area. As a result, the portfolio insurance risk has been raised prohibitively high for viable private crop insurance markets unless subsidized by the government. For example, the portfolio risk faced by U.S. crop insurers is about ten times larger than that of conventional insurance lines (Miranda and Glauber, 1997).

Date: 2014-07-01
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Working Paper: Diversifying Systemic Risk in Agriculture---A Copula-based Approach (2014)
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