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Theory and Measurement of Exotic Options in U.S. Agricultural Support Programs
Author(s) -
Tirupattur Viswanath,
Hauser Robert J.,
Boyle Phelim P.
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 - 10.2307/1244270
Subject(s) - loan , stochastic game , value (mathematics) , derivative (finance) , government (linguistics) , exotic option , agriculture , economics , actuarial science , microeconomics , business , financial economics , valuation of options , computer science , finance , ecology , linguistics , philosophy , machine learning , biology
Theoretical models are derived for pricing derivative market instruments with payoff structures identical to those implied by the deficiency, Findley, and loan programs. Numerical approximation methods are used to obtain market premiums for the exotic contingent claims embedded in these types of programs. The application focuses on a comparison of the value of traditional support programs for corn to that of an exchange put offered under the Option Pilot Program. The comparison provides measures of expected cost to the government and of the value of the programs to the producer.