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The Pricing of Revenue Assurance
Author(s) -
Stokes Jeffrey R.,
Nayda William I.,
English Burton C.
Publication year - 1997
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 - 10.2307/1244142
Subject(s) - revenue , revenue assurance , valuation (finance) , asset (computer security) , economics , variety (cybernetics) , microeconomics , econometrics , differential (mechanical device) , value (mathematics) , revenue model , mathematical economics , business , computer science , finance , engineering , computer security , artificial intelligence , machine learning , aerospace engineering
A theoretical model to value gross revenue assurance under one of the popular proposals facing U.S. policy makers is developed. The approach makes use of a fundamental paradigm of asset valuation and stochastic calculus. Because farm‐level gross revenue is not a traded asset, equilibrium arguments must be made to specify the partial differential equation characterizing the value of the assurance. An example solution is presented under the assumption of lognormally distributed gross revenue. County‐level data for a variety of crops are used to examine empirically the pricing ability of the model.