Designing catastrophe bonds to securitize systemic risks in agriculture: The case of Georgia cotton

This article makes an initial attempt to design catastrophe (CAT) bond products for agriculture and examines the potential of these instruments as mechanisms for transferring agricultural risks from insurance companies to investors/speculators in the global capital market. The case of Georgia cotton...

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Bibliographic Details
Published in:Journal of agricultural and resource economics 2006-08, Vol.31 (2), p.318-338
Main Authors: Vedenov, D.V, Epperson, J.E, Barnett, B.J
Format: Article
Language:English
Subjects:
Bond principal
bond products
cat bonds
catastrophe bond pricing
catastrophe bonds
catastrophe insurance
cotton
Crop insurance
crop yield
disaster risk
Disasters
econometric models
finance
Gossypium hirsutum
insurance
Insurance companies
Insurance premiums
investment
investment planning
Investors
Loss ratios
mathematical models
Reinsurance
risk management
risk securitization
risk transfer
Yield
Zero coupon bonds
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Summary:This article makes an initial attempt to design catastrophe (CAT) bond products for agriculture and examines the potential of these instruments as mechanisms for transferring agricultural risks from insurance companies to investors/speculators in the global capital market. The case of Georgia cotton is considered as a specific example. The CAT bond contracts are based on percentage deviations of realized state average yields relative to the long-run average. The contracts are priced using historical state-level cotton yield data. The principal finding of the study is that the proposed CAT bonds demonstrate potential as risk transfer mechanisms for crop insurance companies.
ISSN:1068-5502
2327-8285
DOI:10.22004/ag.econ.8610