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Spatial‐Temporal Model of Insect Growth, Diffusion and Derivative Pricing
Author(s) -
Richards T.J.,
Eaves J.,
Manfredo M.,
Naranjo S.E.,
Chu C.-C.,
Henneberry T.J.
Publication year - 2008
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2008.01170.x
Subject(s) - process (computing) , risk management , economics , space (punctuation) , population , key (lock) , econometrics , business , computer science , ecology , biology , finance , demography , sociology , operating system
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.