Pricing Models And Empirical Studies Of Crop Insurance

Crop insurance is one of the key issues concerning about'Issues of Agriculture'in China. In the process of agricultural production, farmers face various types of risks including natural risk and the risks coming from market fluctuation. Since 2004, the Chinese Government put the pilot policy-oriented agricultural insurance in practice which has facilitated the development of crop insurance program. But there are still some problems concerning China's crop insurance program, which include but not limited to just few types of insurance products and they are far less adequate to satisfying with the farmers'needs. As a result, there are only a small portion of the farmers who participated in the program etc., and yet these conditions made the insurance companies less confidence in putting effort to developing new insurance products.This dissertation focuses on the current situation of China's policy-oriented insurance program based on the researches that have been published in and out of China by means of, improving the conventional pricing crop yield insurance model and constructing an alternative pricing model with a particular emphasis on crop revenue insurance, and following by some empirical research using the actual historical data. The research results of this article are as follows:(1) Using the non-parametric method this article constructed a yield insurance pricing model and following by empirical study gathering crop yield data across over 19 provinces in China as well as Dalian city of Liaoning province.(2) The Nerlove model is used utilizing the annual China wheat yield data in order to see how farmers are sensitive to the price risks besides the yield risk with the expectation that the price risk should be considered in the crop insurance product developing process.(3) The concept of VaR (Value at Risk) is introduced in the analyzing process of food price, and the ARCH is used to model the price variance. The overall market price risk of corn and wheat can be caculated with the VaR.(4) The revenue pricing model is constructed with the Copula method, concerning both the fluctuation of price and yield, without the assumption that the price and yield are independent with each other. With the joint density function, the Monte Carlo method is used to draw samples for the complex density analytical formula and get the premium rates of revenue insurance.In summary, this study focuses on the fluctuation of crop yield and the risk of food price, taking advantages of sophisticated financial innovation and the actuarially risk measuring tools such as nonparametric kernel density model, VaR model, GARCH-GED model, Copula functions and so on. The pricing model of crop yield insurance is improved and the pricing model of crop revenue insurance product is developed. The empirical study results show that the newly established models in this study have some advantages than the old ones that have been put into practice over the time in China. The result of this article can be used to provide some technical support for the insurance companies as well as consultative advices of some new thinking of the program and this can bring about some reform for in the current Chinese crop insurance program. Ultimately, this will be able to make the crop insurance a healthier and faster development.