Design Of Agricultural Futures Price Insurance Based On Permanent Transitory Model

In recent years,our country pays more attention to the development of agricultural economy.As a result,government departments,financial institutions have joined the ranks of serving “agriculture,rural area and rural people”.Among them,the futures market has carried out a variety of innovative initiatives such as OTC options,“insurance + futures” and etc.The model of “insurance + futures” has gradually become an important way to help disperse the price risk of agricultural products in China.In this model,the price of the futures market serves as the “price index” of the agricultural product price index insurance,and it is used to determine the target price and compensation standard of the insurance.At the same time,combination of the agricultural product market and the futures market is realized through the insurance company.Thus,agricultural operation risks are successfully dispersed into the futures market.The model of “insurance + futures” makes full use of the sufficient customer resources of insurance companies and the strong risk dispersing ability of futures market,and finds a new way to promote the development of agricultural economy.In 2017 and 2018,Document No.1 of the National Central Committee proposed to steadily expand the “insurance + futures” model.After piloting around,Liaoning province,Hubei province,Xinjiang Yunnan Autonomous Region,Yunnan Province and other places have carried out agricultural futures price index insurance.But at present,the insurance developed in each pilot area only uses futures price as the price index of agricultural futures price insurance,and transfers all risks from insurance companies to futures markets,in which,Insurance companies only act as intermediaries.Actually,there are certain drawbacks in this model.Firstly,the insurance design is based on the futures market price only.If the spot price deviates from the futures price,farmers will face huge base risk.Secondly,insurance companies,as intermediaries,are not very involved in this model because of their lack of profit opportunities.Based on the above analysis,this paper applies the Permanent Transitory Model to design products of agricultural futures price insurance.The contribution of the spot market and the futures market to price discovery is used as an important factor to adjust prices of spot market and futures market,which is regarded as the price index of the agricultural product price index insurance.Taking corn futures empirical analysis as an example,the price index insurance of designed agricultural products is determined by futures price,and did the sensitivity analysis of pricing model parameters.The results show that the insurance products designed in this paper take positive effects in reducing the base risk peasant face,decreasing the premium price,giving insurance companies the possibility of profitability,and increasing the enthusiasm of financial institutions to participate in the “insurance + futures” model,which is conducive to promoting the promotion of the “insurance + futures” model.