PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACH
This paper uses Fratini’s (2017) actuarial approach and the traditional risk neutral approach to price the revenue insurance under the framework of Black Scholes put option pricing. Then, we extend the pricing to include a coverage limit. Further, we also decompose the revenue into price and yield a...
| Main Authors: | , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
International Journal of Food and Agricultural Economics
2021-04-01
|
| Series: | International Journal of Food and Agricultural Economics |
| Subjects: | |
| Online Access: | https://www.foodandagriculturejournal.com/vol9.no2.pp109.pdf |
| _version_ | 1828029042032377856 |
|---|---|
| author | Min-Hsien Yang Richard Lu Matt Lin Nian-Zu Yao |
| author_facet | Min-Hsien Yang Richard Lu Matt Lin Nian-Zu Yao |
| author_sort | Min-Hsien Yang |
| collection | DOAJ |
| description | This paper uses Fratini’s (2017) actuarial approach and the traditional risk neutral approach to price the revenue insurance under the framework of Black Scholes put option pricing. Then, we extend the pricing to include a coverage limit. Further, we also decompose the revenue into price and yield and develop another pricing formula using the price and yield information. The risk neutral approach assumes that the underlying revenue is tradable while the actuarial approach assumes the revenue risk is diversifiable. We compute the premiums of the revenue insurance of sugar apple and banana in Taiwan. The results show that the premiums of the actuarial approach are generally lower than the risk neutral approach. Because revenue is often non-tradable, thus, if the individual revenue risk can be fully diversified, then the actuarial approach should be suggested for premiums calculation. |
| first_indexed | 2024-04-10T14:03:17Z |
| format | Article |
| id | doaj.art-60a82aeb8f7a422985a4bb79d348ffa8 |
| institution | Directory Open Access Journal |
| issn | 2147-8988 2147-8988 |
| language | English |
| last_indexed | 2024-04-10T14:03:17Z |
| publishDate | 2021-04-01 |
| publisher | International Journal of Food and Agricultural Economics |
| record_format | Article |
| series | International Journal of Food and Agricultural Economics |
| spelling | doaj.art-60a82aeb8f7a422985a4bb79d348ffa82023-02-15T16:10:07ZengInternational Journal of Food and Agricultural EconomicsInternational Journal of Food and Agricultural Economics2147-89882147-89882021-04-0192109123PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACHMin-Hsien Yang0https://orcid.org/0000-0003-3353-8192Richard Lu1https://orcid.org/0000-0002-9705-6793Matt Lin2https://orcid.org/0000-0001-5258-2880Nian-Zu Yao3https://orcid.org/0000-0001-5232-5956Feng Chia University, Department of International Business, TaiwanFeng Chia University, Department of Risk Management and Insurance, TaiwanFeng Chia University, Department of Risk Management and Insurance, TaiwanFeng Chia University, Bachelor’s Program of Financial Engineering and Actuarial Science, TaiwanThis paper uses Fratini’s (2017) actuarial approach and the traditional risk neutral approach to price the revenue insurance under the framework of Black Scholes put option pricing. Then, we extend the pricing to include a coverage limit. Further, we also decompose the revenue into price and yield and develop another pricing formula using the price and yield information. The risk neutral approach assumes that the underlying revenue is tradable while the actuarial approach assumes the revenue risk is diversifiable. We compute the premiums of the revenue insurance of sugar apple and banana in Taiwan. The results show that the premiums of the actuarial approach are generally lower than the risk neutral approach. Because revenue is often non-tradable, thus, if the individual revenue risk can be fully diversified, then the actuarial approach should be suggested for premiums calculation.https://www.foodandagriculturejournal.com/vol9.no2.pp109.pdfactuarial approachblack scholes modeloption pricingput optionsrevenue insurance |
| spellingShingle | Min-Hsien Yang Richard Lu Matt Lin Nian-Zu Yao PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACH International Journal of Food and Agricultural Economics actuarial approach black scholes model option pricing put options revenue insurance |
| title | PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACH |
| title_full | PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACH |
| title_fullStr | PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACH |
| title_full_unstemmed | PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACH |
| title_short | PRICING THE REVENUE INSURANCE OF SUGAR APPLE AND BANANA IN TAIWAN: AN ACTUARIAL APPROACH |
| title_sort | pricing the revenue insurance of sugar apple and banana in taiwan an actuarial approach |
| topic | actuarial approach black scholes model option pricing put options revenue insurance |
| url | https://www.foodandagriculturejournal.com/vol9.no2.pp109.pdf |
| work_keys_str_mv | AT minhsienyang pricingtherevenueinsuranceofsugarappleandbananaintaiwananactuarialapproach AT richardlu pricingtherevenueinsuranceofsugarappleandbananaintaiwananactuarialapproach AT mattlin pricingtherevenueinsuranceofsugarappleandbananaintaiwananactuarialapproach AT nianzuyao pricingtherevenueinsuranceofsugarappleandbananaintaiwananactuarialapproach |