Impact of copula choice on the modeling of crop yield basis risk

Joshua D. Woodard, Nicholas D. Paulson, Dmitry Vedenov, Gabriel J. Power

Research output: Contribution to journalArticlepeer-review

Abstract

A number of problems in agricultural economics involve modeling joint distributions for which the assumption of multivariate normality may not be warranted. Yet, very little work has been conducted evaluating competing methods for modeling joint dependence. We develop a simulation framework to evaluate the bias and efficiency impacts of copula choice in the context of evaluating county-to-farm basis risk. The results suggest significant differences in performance across various copulas and approaches. The findings have important implications for risk analysis, insurance, and policy modeling problems in agriculture regarding the selection of method to model dependence among random variables.

Original languageEnglish (US)
Pages (from-to)101-112
Number of pages12
JournalAgricultural Economics
Volume42
Issue numberSUPPL. 1
DOIs
StatePublished - Nov 1 2011

Keywords

  • Copulas
  • Crop insurance rating efficiency
  • GRIP basis risk
  • Iman and Conover procedure
  • Kernel copula
  • Phoon, Quek, and Huang Procedure

ASJC Scopus subject areas

  • Agronomy and Crop Science
  • Economics and Econometrics

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