Designing Catastrophe Bonds to Securitize Systemic Risks in Agriculture: The Case of Georgia Cotton

摘要

This article makes an initial attempt to design catastrophe (CAT) bond products for agriculture and examines the potential of these instruments as mechanisms for transferring agricultural risks from insurance companies to investors/speculators in theglobal capital market. The case of Georgia cotton is considered as a specific example. The CAT bond contracts are based on percentage deviations of realized state average yields relative to the long-run average. The contracts are priced using historicalstate-level cotton yield data. The principal finding of the study is that the proposed CAT bonds demonstrate potential as risk transfer mechanisms for crop insurance companies.