Theory and Measurement of Exotic Options in U.S. Agricultural Support Programs

13 Pages Posted: 31 Mar 2020

See all articles by Viswanath Tirupattur

Viswanath Tirupattur

Lincoln Investment Management, Inc.

Robert J. Hauser

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Phelim P. Boyle

Wilfrid Laurier University - School of Business & Economics; University of Waterloo

Date Written: November 1997

Abstract

Theoretical models are derived for pricing derivative market instruments with payoff structures identical to those implied by the deficiency, Findley, and loan programs. Numerical approximation methods are used to obtain market premiums for the exotic contingent claims embedded in these types of programs. The application focuses on a comparison of the value of traditional support programs for corn to that of an exchange put offered under the Option Pilot Program. The comparison provides measures of expected cost to the government and of the value of the programs to the producer.

Keywords: exotic options, government support programs, numerical methods for option valuation, Q180

Suggested Citation

Tirupattur, Viswanath and Hauser, Robert J. and Boyle, Phelim P., Theory and Measurement of Exotic Options in U.S. Agricultural Support Programs (November 1997). American Journal of Agricultural Economics, Vol. 79, Issue 4, pp. 1127-1139, 1997, Available at SSRN: https://ssrn.com/abstract=3562680 or http://dx.doi.org/10.2307/1244270

Viswanath Tirupattur (Contact Author)

Lincoln Investment Management, Inc. ( email )

Gloucester GL4 3RZ
United Kingdom

Robert J. Hauser

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics ( email )

1301 W. Gregory Drive
332 Mumford Hall
Urbana, IL 61801
United States
217-333-8859 (Phone)
217-333-5538 (Fax)

Phelim P. Boyle

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada
519 884 1970 (Phone)
519 888 1015 (Fax)

University of Waterloo

Waterloo, Ontario N2L 3G1
Canada

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