Farmers risk-balancing, consumption and optimal debt level

Date of Publication

2009

Document Type

Master's Thesis

Degree Name

Master of Science in Economics

College

School of Economics

Department/Unit

Economics

Defense Panel Chair

Lawrence B. Dacuycuy

Abstract/Summary

This paper presents a stochastic optimal control/dynamic programming (SOC/DP) approach to derive the optimal debt level and consumption in farm models concerning two sources of undertainty: the return on assets and real interest rate. The SOC/DP analytic framework is used to analyze the impact of risk-reducing farm policies on farms financial and risk adjustments. The results show a violation of the risk-balancing concept, which theorizes that risk-reducing farm policies may lead to increases in financial leverage, total risk, and the expected returns. Also, this study examines the extent to which the estimates of the optimal debt level are biased when interest rate risk is ignored.

Abstract Format

html

Language

English

Format

Print

Accession Number

TG05376

Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

18 leaves ; 28 cm.

Keywords

Financial risk; Financial risk management; Interest rate risk

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