For example, for a given coverage level, the difference in per acre premiums between the YP and RPHPE policies would reflect the value of downside price insurance, analogous to the value of an out-of-the-money put option. Likewise, the difference between the per acre premiums between the RPHPE and RP policies would reflect the value of upside price insurance, analogous to the value of a call option. Knowing this, growers can compare the value of downside or upside price insurance from revenue products to comparable price insurance via the options market. For example, there could be some years when it would be cheaper to buy a YP policy and marry it to an out-of-the-money put option, rather than buy an RPHPE policy. Or vice versa.
Welcome to the educational website of Dr. John Robinson in the Department of Agricultural Economics at Texas A&M University.
The website focuses on farm-level implementation of strategies for Texas cotton growers to deal with yield and price risk. Contact me to receive a weekly e-mail notice of when the latest edition is posted on-line. In addition, we provide daily crop market news and commentary on Twitter (@aggie_prof) and also on the Master Marketer facebook page. We welcome your feedback and interaction in these social media.