Scheme Design And Pricing Of Agricultural “Insurance+Futures”

The policies of minimum purchase price and temporary storage have been implemented for many years,the price regulation mechanism of grain and importantly agricultural products in China is facing many difficulties,such as price inversion at home and abroad,the increase of import and stock,the pressure of storage capacity and the imbalance of planting structure.In 2014,the government introduced the reform of price mechanism which decouples the price formation mechanism of agricultural products from government subsidies.The core of the reform is the price control policy of agricultural products,that is,the target price subsidy and producer subsidy policies.Although the policies of target price subsidy and producer subsidy have achieved some results,it still faces the predicament of higher verification cost of agricultural product area,difficult to adjust planting structure and greater financial pressure for the government.With the formation of market-oriented pricing of agricultural products,price risk has become an important factor affecting farmers' income.As a cross-border fusion of insurance and futures,agricultural "insurance + futures" not only overcomes the difficulties for farmers to enter the futures and options market,but also remedies the two internal defects of the difficulty in determining the target price of agricultural price insurance and the lack of transfer mechanism of systematic price risk.Since its introduction,it has been highly valued by the state.As viewed from 2016,2017 and2018,the document No.1 of central government all proposed to expand the "insurance+ futures" mode steadily.Compared with the target price subsidy and producer subsidy policy,the agricultural "insurance + futures" has the similar operation mechanism,but the pressure of national financial funds is relatively small,the perfect service system of agricultural insurance of insurance companies can significantly improve the operation efficiency,and belongs to the WTO green box policy,the comparative advantage is obvious,so its policy orientation in the agricultural price control mechanism is worth exploring.Although the development of agricultural "insurance + futures" is in full swing,the current pilot scheme adopts the single operation mode of "insurance + OTC put option + on-the-spot futures".There are many problems,such as farmers bear a larger basis risk,the status of "intermediary" of insurance companies is awkward and futures companies have a greater stamping force.In view of the existing problems in the pilot scheme of agricultural "insurance + futures",especially the lack and significance of scheme design and pricing in "insurance + futures",this paper studies the scheme design and pricing of agricultural "insurance + futures" from the perspective of price control mechanism.The specific chapters of this study are arranged as follows:The chapter 1,introduction.Firstly,this paper analyzes the background and significance of this study;secondly,it preliminarily defines the concepts of agricultural price insurance,revenue insurance,agricultural "insurance + futures"(including "price insurance + futures" and "income insurance + futures"),agricultural price regulation mechanism and price risk management;and then gives the basic research ideas,main research contents,research methods,innovations and shortcomings of this paper..The chapter 2,literature review and theoretical basis.Firstly,this paper reviews the relevant literature of agricultural price risk management of,price regulation policy,“insurance + futures”and agricultural insurance pricing,and defines the scope of this study;secondly,it expounds the relevant theories of agricultural risk management,price regulation and“insurance + futures”,such as market failure theory,agricultural protection theory and agricultural insurance theory.It not only leads to the ma in contents of this paper,but also lays the theoretical foundation for further research.The chapter 3,the agricultural price risk and the introduction of "insurance +futures".First,corn and eggs are taken as an example to analyze the characteristics and influencing factors of agricultural price fluctuation.The agricultural price fluctuation has the characteristics of periodicity,seasonality,regional difference,financialization,agglomeration and asymmetry,and the four major factors that affect the price fluctuation of agricultural products are supply,demand,policy and international market factors.Secondly,the Va R method based on historical simulation and extreme value theory POT model is used to evaluate the price volatility risk of seven major corn producing areas and six major egg producing areas.The results show that there are obvious regional differences in price volatility risk of corn and eggs,and it is necessary to provide price risk protection to farmers in different regions.Finally,through combing the evolution process of agricultural product price risk management tools,this paper leads to the agricultural product "insurance + futures".As a cross-border fusion of insurance and futures,agricultural product "insurance + futures" not only overcomes the difficulty for farmers to enter the futures and options market,but also makes up for the two endogenous defects of price insurance.It has obvious comparative advantages,but also faces the risk of base spread,institutional risk,default risk and pricing risk.Although the agricultural price risk is not insurable risk,the insurer can change the uninsurable risk into insurable risk by constantly improving his own technical conditions.The "insurance + futures" of agricultural products can control the risk of indemnity within a reasonable range by using the existing technology.The chapter 4,the Sino and US agricultural "insurance + futures" practice plan and comparison.In this chapter,firstly,taking the Livestock Risk Protection Insurance of fattening cow(LRP)and the profit insurance of Livestock Gross Margin(LGM)as examples,the author analyzes the concrete practice scheme of American agricultural "price insurance + futures",and draws the experience and Enlightenment beneficial to the design of "price insurance + futures" scheme of our country.For example,the perfect reinsurance system is premise to promote agricultural "insurance + futures",shorter calculating period of claims can effectively protect farmers' actual losses.Taking RP(excluding receiving price)and ARP(excluding receiving price)as examples,this paper introduces American practical scheme of "revenue insurance +futures".The insurance subsidy policy is the basis and premise of operating "income insurance + futures" respectively.Taking the MPP-Dairy project as an example,this paper introduces the practice of replacing the traditional livestock price support policy with the insurance operation mechanism,and concludes that the price support policy based on the insurance mechanism can significantly increase the efficiency of revelation of financial funds.Secondly,the paper analyzes in detail the four pilot schemes of agricultural "insurance + futures",which are typical representative schemes in China,namely "Dalian" scheme,"Beipiao and Faku" scheme,"Huachuan" scheme and "Chongqing" scheme.Although the four pilot schemes have their own characteristics,they have the common characteristics of the operation process of the three links of "insurance + OTC option + futures market",the dominant position of the exchange and the futures company,and designing products entirely based on the futures market price.And they are faced with such problems as farmers taking a larger basis risk,the embarrassment of the status of insurance companies as "intermediaries" and the pressure of futures companies to hedge risks.Finally,from the four aspects of basic operation mode,participants,product content and market environment,this paper compares the practice program of agricultural "insurance + futures" between China and the United States,and concludes that China should make greater efforts to promote the development of agricultural products futures and options,speed up the pace of largescale agricultural production,and improve the catastrophe risk dispersion system of agricultural insurance and reconstruct the operation mechanism of "insurance + futures".The chapter 5,the policy orientation and general plan of agricultural "insurance +futures" in the price control mechanism.Firstly,this chapter combs the current situation and predicament of the current agricultural price control mechanism of in China,and finds that it is mainly faced with the predicament of price inversion at home and abroad,the increase of import and inventory,the warehouse pressure of capacity,the difficulty of adjusting the agricultural planting structure of and the high cost of verification of planting area.Secondly,this paper expounds the theoretical logic that the agricultural "insurance + futures" acting on the price control mechanism,that is,the price control policy achieves the policy goal by acting on the control object.If agricultural "insurance+ futures" is a kind of price regulation policy,and its regulating objects include the state,the market of agricultural products,agricultural producers and consumers and insurance companies,futures companies and so on,this paper analyzes Possible role of agricultural "insurance + futures" in price regulation mechanism from four aspects: the state,the market of agricultural products,agricultural producers and consumers,and related enterprises.Then,by comparing the implementation effect of "insurance +futures" and price support policy,it is concluded that "insurance + futures" can be an important complement to the traditional price support policy,a substitute for modern price subsidy policy and an important tool of fresh agricultural control catalogue system.Finally,the overall scheme of agricultural "insurance + futures" in China is preliminarily constructed from three aspects: operation mechanism,scheme design and applicational scope of agricultural products.That is,in terms of operational mechanism,the central financial subsidy,the guidance of the Ministry of Finance and Agriculture and Rural Areas,the supervision and guidance of the Banking Insurance Regulatory Commission,the operation of commercial insurance companies,the technical support provided by futures companies,and the Ministry of Agriculture and Rural Areas and the Banking Insurance Regulatory Commission taking the lead in setting up special agricultural reinsurance management agencies to provide reinsurance.In the design of the scheme,the principles of replication,sustainability and simplicity are adhered to;the short-term scheme still adopting the operation mode of three links similar to the existing pilot scheme;and the long-term scheme adopts the operation mode of two links.In terms of the applicational rules and scope of agricultural products: aquaculture is applicable to the "price insurance + futures" program,planting is applicable to the "income insurance + futures" program;agricultural "insurance + futures" is applicable to rice,wheat,cotton,corn,soybeans,eggs and other agricultural products.The chapter 6 is the scheme design and pricing of agricultural "price insurance +futures".The scheme of agricultural "price insurance + futures" designed in this chapter still adopts the three-link model similar to the existing pilot project,but the specific content of each link is different from the existing model.This scheme has two major characteristics: significantly reducing the basis risk of farmers' and insurance company is the main body of risk underwriting.The essence of spot price insurance and OTC put option in the design scheme is fixed-executed discrete arithmetic average Eurasian option.This chapter mainly uses option pricing model to determine its rate.The agricultural price fluctuation shows obvious characteristics of stochastic fluctuation and jump,so the stochastic volatility jump diffusion Bates model is used to fit the price fluctuation path.Firstly,Bayesian Markov Chain Monte Carlo Simulation(MCMC)based on M-H algorithm is used to estimate the parameters of Bates model,and then Monte Carlo method based on variance reduction technique is used to simulate the path of agricultural price fluctuation.Finally,the premium is calculated based on the fixed execution price discrete arithmetic average European Asian option pricing formula..Selecting six major egg producing areas of Henan,Shandong,Hebei,Jiangsu,Hubei and Sichuan to determine the rate of "price insurance + futures" scheme,the empirical results show that: the price insurance of eggs based on futures market price can not meet the needs of farmers to protect the risk of price decline;the price insurance for farmers based on spot market,the use of OTC put options for insurance companies to provide reinsurance protection is very limited,far from meeting the needs of insurance companies to diversify risk,especially can not meet the needs of insurance companies to diversify extreme risk;the design of the egg "price insurance + futures" option insurance companies undertake the OTC hedging risk than The current "price insurance + futures" pilot helps to reduce the base risk of farmers.In order to ensure the accuracy of the option pricing method,this chapter uses the parametric method and non-parametric method to determine the rate of the design scheme.The empirical results show that the option pricing method is slightly higher than the non-parametric kernel density estimation method,but both of them are less than 0.01.Therefore,it is feasible to use the stochastic volatility jump diffusion Bates model to determine the rate of the "price insurance + futures" scheme.The chapter 7,the scheme design and pricing of the agricultural "revenue insurance + futures".Firstly,this chapter designs The basic operation mode of the three links of the revenue insurance provided by insurance companies to farmers,and adopting the form of regional income insurance,and Price index and output index are the provincial spot price and the average output per mu of agricultural products respectively;Insurance companies buy Futures Company OTC options with partial price risk;Futures Company reproduces the price risk of the OTC put option by replicating on the floor option.the option price is the price risk.This paper selects seven major producing areas for corn in China,namely Hebei,Inner Mongolia Autonomous Region,Liaoning,Jilin,Heilongjiang,Shandong and Henan,and conducts an empirical study on the pricing of "income insurance + futures" scheme.We selects Seven types of distribution of the Weibull(3P)?Burr(4P)?Log-Logi.(3P)?Logi.?Log.(3P)?Normaland Gamma(3P),then The price logarithmic yield and output volatility data of seven major maize producing areas were simulated respectively.K-S,A-D and chi square test were used to select the appropriate distribution of price and unit yield risk in seven main producing areas.Then,with the minimum Euclidean distance as the selection criterion,the optimal correlation function is selected in the five Copula functions.Finally,the premium is calculated according to the formula of income premium rate.According to the result of rate determination,we find that the regional income insurance premium rate varies greatly in different regions under the same level of security,and the ranking of the premium rates of the seven corn major producing areas in China is not directly related to the correlation between the price and yield risk of each region;the regional income insurance premium rate varies with the different level of security in the same region.Larger.The chapter 8,research conclusions,policy recommendations and prospects.This paper summarizes the full text,summarizes the seven basic conclusions of this study,and prospects the future research direction in this field.The innovations of this paper include the following for aspects:Firstly,this paper tries to discuss the role and policy orientation of agricultural "insurance + futures" in the price control mechanism.For the first time,based on the dilemma faced by the agricultural price control mechanism of in China,this paper analyzes the theoretical logic of the effect of "insurance + futures" on the price control mechanism,that is,the price control policy achieves the policy objectives by acting on the control object.Agricultural "insurance + futures" as the object of price control policy includes the state,agricultural market,agricultural producers and consumers,insurance companies,futures companies and so on.Therefore,from four aspects of the state,agricultural product market,agricultural producers and consumers and related enterprises,this paper preliminarily analyzes the possible role in price adjustment mechanism of agricultural "insurance + futures".By comparing the implementation effect of "insurance + futures" and price support policy,it is preliminarily concluded that "insurance + futures" can be an important complement to the traditional price support policy,a substitute for modern price subsidy policy,and an important tool for fresh agricultural product control catalogue system.Secondly,the overall scheme of agricultural "insurance + futures" in China is preliminarily constructed from three aspects: operation mechanism,scheme design and scope of application of agricultural products.From the point of view of operation mechanism,this paper argues that the central government should subsidize funds,the Ministry of Finance and the Ministry of Agriculture and Rural Areas should take the lead,the Banking Insurance Regulatory Commission should supervise and guide,commercial insurance companies should operate,futures companies should provide technical support,and the Ministry of Agriculture and Rural Areas and the Banking Insurance Regulatory Commission should take the lead in setting up special agricultural reinsurance management institutions to provide reinsurance.As far as scheme design is concerned,this paper argues that we should adhere to the principles of replication,sustainability and simplicity;the short-term scheme can adopt three links of operation similar to the existing pilot scheme,but the specific content of each link is improved compared with the current pilot scheme;the long-term scheme adopts the operation mode of two links(that is,insurance companies provide price or income insurance for agricultural products,reinsurance institutions provide reinsurance for them).From the perspective of applicable rules and scope of agricultural products,this paper considers that aquaculture industry is suitable for "price insurance + futures" scheme,planting industry is suitable for "income insurance + futures" scheme;specifically,agricultural products "insurance + futures" applies to rice,wheat,cotton,corn,soybean,eggs and other agricultural products.Thirdly,based on the evaluation results of regional differences in risk of price fluctuation of agricultural products,this paper tries to explore the risk of price fluctuation of insured agricultural products in different regions.Va R method based on historical simulation and extreme value theory POT model is used to evaluate the price fluctuation risk of seven major corn producing areas and six major egg producing areas in China.The results show that there are obvious regional differences in the price fluctuation risk of corn and eggs,and it is necessary to provide price risk protection to farmers in different regions.Therefore,the price index of price insurance and income insurance in the agricultural "price insurance + futures" and "income insurance +futures" schemes is no longer the agricultural futures price in the current pilot scheme,but the agricultural provincial spot price.The difference between the spot price at the provincial level and the actual selling price of farmers is smaller than the difference between the futures price of agricultural products and the actual selling price of farmers.It can be seen that the risk of fluctuation of the prices of agricultural products under regional insurance discussed in this paper can significantly reduce the base risk of farmers.Fourthly,we try to use option pricing method to determine the premium rate of agricultural "price insurance + futures" scheme.In the scheme of "price insurance based on spot market + hedging partial risk over-the-counter option + on-the-spot futures",the essence of spot price insurance and off-the-counter put option is discrete arithmetic average Eurasian option with fixed execution price,so we try to use option pricing method to determine its rate.The agricultural price fluctuation shows obvious stochastic volatility and jump characteristics.The stochastic volatility jump diffusion Bates model is used to fit the price fluctuation path.The parametric method and nonparametric method of agricultural insurance pricing are used to determine the rate of the design scheme,so as to ensure the accuracy of the pricing result of option pricing method.From the empirical results,we can see that the difference between the pricing results of option pricing method and that of non-parametric kernel density estimation method is small.It can be seen that the option pricing method of agricultural "price insurance + futures" is feasible.