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Activity Number:
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238
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Type:
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Contributed
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Date/Time:
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Tuesday, August 5, 2008 : 8:30 AM to 10:20 AM
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Sponsor:
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Business and Economics Statistics Section
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| Abstract - #301098 |
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Title:
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Modeling Dependence in the Design of Crop Insurance Contract: A Semiparametric Copula Model Approach
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Author(s):
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Ying Zhu*+ and Sujit Ghosh and Barry Goodwin
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Companies:
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North Carolina State University and North Carolina State University and North Carolina State University
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Address:
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2801 Founders Drive, Raleigh, NC, 27695-8110,
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Keywords:
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copula function ; semi-parametric estimation ; crop insurance
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Abstract:
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I evaluate and model multivariate risk factors and their interaction in agricultural production with implications for rating crop insurance contracts. The copula approach is applied to construct a multivariate distribution of the risks of revenue variability that arises from changes in crop prices, yields, or both. Various copula functions are investigated for their suitability in modeling yield and price risks. A semi-parametric method is proposed to estimate the joint distribution of price and yield risks by evaluating a parametric copula function at their nonparametric kernel-based marginal distributions. The proposed copula approach is illustrated with simulated data to calculate the premium rate of the whole farm insurance. Results show that WFI is superior to crop-specific insurance with premium 36% cheaper than the latter for the same level of insurance coverage.
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