Hedging Price Risk in the Presence of Crop Yield and Revenue Insurance

Diffusion du document : INRA Unité d'Economie et Sociologie rurales rue Adolphe Bobierre CS 61103 35011 Rennes Cedex (FRA)The demand for hedging against price uncertainty in the presence of crop yield and revenue insurance contracts is examined for French wheat farms. The rationale for the use of options in addition to futures is first highlighted through the characterisation of the first-best hedging strategy in the expected utility framework. It is then illustrated using numerical simulations. The presence of options is shown to allow the insured producer to adopt a more speculative position on the futures market. Futures are shown to be performing, in terms of willingness to receive. Options are weakly performing when futures markets are unbiased, while they are more performing when futures markets are biased