Coping with systemic risk in index‐based crop insurance
研究了区域分散化和巨灾债券两种策略应对指数型农作物保险系统性风险的效果，发现除非资本市场投资者极度风险厌恶，否则基于区域产量指数的巨灾债券在农民和保险公司的确定性等价方面优于区域分散化。
Abstract The implementation of index‐based crop insurance is often impeded by the existence of systemic risk of insured losses. We assess the effectiveness of two strategies for coping with systemic risk: regional diversification and securitization with catastrophe (CAT) bonds. The analysis is conducted in an equilibrium pricing framework which allows the optimal price of the insurance and the number of traded contracts to be determined. We also explore the role of basis risk and risk aversion of market agents. The model is applied to a hypothetical area yield insurance for rice producers in northeast China. If yields in two regions are positively correlated, we find that enlarging the insured area leads to higher insurance premiums. Unless capital market investors are very risk averse, a CAT bond written on an area yield index outperforms regional diversification in terms of certainty equivalents of both farmers and insurers.