Search results

1 – 8 of 8
Article
Publication date: 5 May 2008

Calum G. Turvey

This paper outlines approaches to valuating weather‐linked bonds, mortgages, and operating lines of credit. Using historical data from weather stations in Adrmore…

Abstract

This paper outlines approaches to valuating weather‐linked bonds, mortgages, and operating lines of credit. Using historical data from weather stations in Adrmore, Oklahoma, and Ithaca, New York, indemnities and insurance premiums are computed for specific‐event rainfall insurance. The main contribution of the paper is the development of new and accurate formulae for determining the coupon rates on weather‐linked bonds and the interest rates on weather‐linked mortgages and lines of credit. The empirical aspects of the paper indicate that linking weather risk to debt may be very costly if the risks are common, but the risk premiums on rare or low‐frequency weather risks can be very manageable.

Details

Agricultural Finance Review, vol. 68 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 2 February 2010

Calum G. Turvey and Rong Kong

The purpose of this paper is to investigate weather risks facing Chinese farmers, and to determine whether farmers would have a preference for weather insurance over other…

Abstract

Purpose

The purpose of this paper is to investigate weather risks facing Chinese farmers, and to determine whether farmers would have a preference for weather insurance over other types of agricultural insurance.

Design/methodology/approach

The data are based on 1,564 farm households surveyed in Shaanxi, Henan, and Gansu provinces in Central China between October 2007 and 2008.

Findings

Results suggest that the greater risk for farmers is drought followed by excessive rain. Heat is less critical as a risk but more significant than cool weather. Results suggest a strong interest in precipitation insurance with 50 and 44 percent of respondents indicating strong interest in the product. Supplementary results indicate that interest is equal between planting, cultivating, and harvesting. Furthermore, results suggest that farmers are willing to adopt new ideas, and where possible action has already been taken to self‐insure through diversification and other means.

Research limitations/implications

This research is based on primary data gathered in China. However, the authors are limited in the access to Chinese weather station data to illustrate how weather insurance operates. Instead, the authors use weather data from the weather station in Ashland, Kansas which has similarities to the wheat growing regions of China. While the example is for illustrative purposes only, the authors cannot claim that it actually represents premiums that might actually be found in China.

Practical implications

The Chinese Government has within the past year authorized an investigation into agricultural insurance. The burst of research and applications of weather insurance in both developed and developing countries suggest that a wide array of applications could be feasible in China. The results are encouraging because they suggest that farmers in China would have an interest in purchasing weather insurance.

Originality/value

The authors believe that this is the first study conducted on weather insurance in China. The survey instrument is designed to specifically determine what weather risks are important to Chinese farmers and the interest that farmers would have in using such a product.

Details

China Agricultural Economic Review, vol. 2 no. 1
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 2 November 2012

Calum G. Turvey, Vicki L. Bogan and Cao Yu

Firms facing significant income volatility can often suffer from downside risk such that return on assets is insufficient to meet fixed financial obligations. The purpose…

1922

Abstract

Purpose

Firms facing significant income volatility can often suffer from downside risk such that return on assets is insufficient to meet fixed financial obligations. The purpose of this paper is to provide a prescriptive credit solution for small businesses facing exogenous income risk.

Design/methodology/approach

Formulas for risk‐contingent operating and collateralized loans are developed and simulated in the context of a specific business sector.

Findings

The paper demonstrates that a structured credit product with an imbedded option can reduce or eliminate financial risks by providing payouts that decrease the amount of principal and/or interest that firms must repay under low income states.

Originality/value

The overall objective of this paper is to provide a means to mitigate exogenous income risk faced by firms through the design and application of a risk‐contingent credit product that is tied to primary markets and simple to implement. In this context, risk contingency credit refers to a suite of financial products with payoff schedules (loan principal) that are linked to specific commodities or indices. The authors are in fact unaware of any commercial financial products of the type considered in this paper and thus their approach is a prescriptive solution to the identified problem.

Details

The Journal of Risk Finance, vol. 13 no. 5
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 7 September 2015

Apurba Shee, Calum G. Turvey and Joshua Woodard

The purpose of this paper is to assess the feasibility of risk-contingent credit (RCC) by presenting an experimental and participatory game designed to explain the concept…

Abstract

Purpose

The purpose of this paper is to assess the feasibility of risk-contingent credit (RCC) by presenting an experimental and participatory game designed to explain the concept of RCC to Kenyan pastoralists and dairy farmers. The paper investigates the uptake potential of RCC through qualitative assessment of field experiments and focus groups.

Design/methodology/approach

The paper presents a method of community engagement through a participatory game played in a series of Focus Group Discussions (FGDs). The paper also presents theoretical justification of RCC in credit market structure.

Findings

The game effectively explains the concept and mechanism of RCC by reflecting local situation and production potential. Participatory exercises within focus group discussions indicate that there exists a strong interest and support for RCC.

Research limitations/implications

The methodology described in this paper can be used in extension programs for promoting innovative rural microcredit in developing countries but should be modified according to the local production and associated weather and market risks.

Originality/value

Micro-insurance and credit program delivery can be improved by the innovative approach of community engagement for explaining financial products.

Details

Agricultural Finance Review, vol. 75 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 22 November 2011

Rong Kong, Calum G. Turvey, Guangwen He, Jiujie Ma and Patrick Meagher

China frequently suffers from weather‐related natural disasters and weather risk is recognized as a source of wide‐spread systemic risk throughout large swaths of China…

1051

Abstract

Purpose

China frequently suffers from weather‐related natural disasters and weather risk is recognized as a source of wide‐spread systemic risk throughout large swaths of China. During these periods farmers' crops are at risk and for a largely poor population few can afford the turmoil to livelihoods that goes along with drought. The purpose of this paper is to investigate the willingness of Shaanxi and Gansu farmers to purchase weather insurance.

Design/methodology/approach

This paper is based on surveyed results of 890 farm households in Shaanxi and Gansu provinces. The survey was designed specifically to extract willingness to pay for weather insurance. Factor affecting willingness to pay are explained using linear regression.

Findings

The authors find strong evidence that the demand for drought insurance is downward sloping and also believe from the analysis that the demand is fairly elastic. This suggests that price matters and the results suggest that in order for wide spread adoption of weather insurance farmers will require a substantial premium, perhaps in the order of 80 per cent, as is being applied to current crop insurance initiatives. The authors find, as expected, that crop producers would be willing to pay more for insurance than livestock producers, but also find, as one would expect, that the key indicator is risk. Using a Pert distribution, the authors constructed from information gathered from farmers the expected values and standard deviations of gross revenues and yields of the most prominent crop and constructed the coefficient of variation. It was found in both cases that the higher the CV the greater the willingness to pay.

Originality/value

The authors believe that this is the first willingness‐to‐pay study of weather insurance uptake in China. The authors used a unique “experimental” design and investigation technique to determine weather insurance demand.

Details

China Agricultural Economic Review, vol. 3 no. 4
Type: Research Article
ISSN: 1756-137X

Keywords

Article
Publication date: 5 May 2015

Lin Sun, Calum G. Turvey and Robert A. Jarrow

– The purpose of this paper is to outline a pricing formula for the valuation of catastrophic (CAT) bonds as applied to multiple trigger drought risks in Kenya.

Abstract

Purpose

The purpose of this paper is to outline a pricing formula for the valuation of catastrophic (CAT) bonds as applied to multiple trigger drought risks in Kenya.

Design/methodology/approach

The valuation model is designed around the multiple triggers of the Mexican Catastrophe bonds, but the valuation model is based on Jarrow’s (2010) closed form CAT Bond Pricing model. The authors outline the model structure, the multiple tranches with rainfall triggers, and simulate the model using Monte Carlo methods. Data input was synthesized from historical rainfall data in Kenya’s Moyale region as well as prevailing LIBOR and rates and conventional coupons.

Findings

The authors compute the valuation model using Monte Carlo techniques. The authors found the pricing method to be robust and consistent under various parameter settings including trigger levels, time after launch, recovery rates, coupon spreads, and zero coupon curves. For example the higher the trigger rates, the lower will be the bond price at issue. With 50 percent recovery the CAT bond at issue would be around $702 with a high triggers and 976 with low triggers, but the valuation changes with parameters.

Practical implications

As far as the authors know the use of multiple trigger CAT bonds has been very limited in practice. The valuation formula and methods outlined in this paper show how CAT bonds can be effectively designed to address CAT covariate risks in developing agricultural economies.

Originality/value

This paper examines CAT bonds to investigate multi-trigger rainfall risks in Kenya. The paper shows how CAT bonds can be designed to meet specific and CAT risks. Using Jarrow’s (2010) closed form solution this paper is one of the first to apply it to the macro-management of agricultural risks.

Details

Agricultural Finance Review, vol. 75 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 1 June 2003

Steven Li

In this paper, the future trends and challenges of financial risk management are considered. First, the historical developments and current status of financial risk…

5676

Abstract

In this paper, the future trends and challenges of financial risk management are considered. First, the historical developments and current status of financial risk management are assessed. Then, key features of the financial industry in the digital economy are discussed. It is argued that the technology innovations, particularly in computing and telecommunication, will continue to have an important influence on the future development of financial risk management. Based the past and present of financial risk management as well as the general trends in the financial industry, some future trends and challenges of financial risk management in the digital economy are discussed. Finally, some implications for financial institutions, corporations and emerging economies are given.

Details

Managerial Finance, vol. 29 no. 5/6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 5 May 2002

Yufei Jin and Calum G. Turvey

One of the particular problems facing agribusiness firms is the relationship between commodity price risk (a source of business risk) and debt repayment ability (a source…

Abstract

One of the particular problems facing agribusiness firms is the relationship between commodity price risk (a source of business risk) and debt repayment ability (a source of financial risk). This study examines the use of commodity‐linked loans applied to agricultural credits. A commodity‐linked loan is a credit instrument whose payoff is contingent on the value of an underlying commodity or portfolio of commodities. The payoff structure includes an option (call or put) rider that provides a payoff if the commodity price rises above or drops below a preset strike price. The payoff is applied directly to the loan. This study introduces the general concept, reviews the literature, and develops and applies a particular model. Simulation results illustrate the interrelationship between options payoffs, strike prices, volatility, and downside financial risk reduction.

Details

Agricultural Finance Review, vol. 62 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

1 – 8 of 8