THEORY AND MEASUREMENT OF EXOTIC OPTIONS IN US AGRICULTURAL SUPPORT PROGRAMS

Theoretical models are derived for pricing derivative market instrumen ts with payoff structures identical to those implied by the deficiency , Findley, and loan programs. Numerical approximation methods are used to obtain market premiums for the exotic contingent claims embedded i n these types of programs. The application focuses on a comparison of the value of traditional support programs for corn to that of an excha nge put offered under the Option Pilot Program. The comparison provide s measures of expected cost to the government and of the value of the programs to the producer.