Cash Settled Commodity Option Contracts as an Alternative to Minimum Support Price: A Mechanism to Alleviate Farmer Distress
Cash settled commodity options is a possible alternative to create a mechanism so that minimum support prices work in reality and do not remain a paper exercise. This paper argues that the government should create a commodity options market for all minimum support price (MSP) commodities. Further option contracts should be cash settled. The government should participate by selling put options at or above the minimum support price, so that farmers can exercise the option if they find that market prices are below the minimum support price.
Ahuja, N. L. (2006). Commodity derivatives market in India: Development, regulation and future prospects. International Research Journal of Finance and Economics, 2(1), 153-162.
Ali, S. Z., Sidhu, R. & Vatta, K. (2012). Effectiveness of Minimum Support Price Policy for Paddy in India with a Case Study of Punjab. Agricultural Economcis Research Review, 231-242.
Chan, L. & Lein, D. (2003). Using hihg, low, open, and closing prices to estimate the effects of cash settlement on futures prices. International Review of Financial Analysis, 12(1), 35-47.
Cornell, B. (1997). Cash settlement when the underlying securities are thinly traded: A case study. Journal of Futures Markets: Futures,Options, and Other Derivative Products, 17(8), 855-871.
Guru, A. (2009, January). Indian derivative markets: Some policy issues. NSE NEWS.
Karande, K. (2017, April 7). Commodity Options in India.
Lein, D. (1989). Cash settlement provisions on futures markets. Journal of Futures Markets, 9(1), 263-270.
Lein, D. & Tse, Y. K. (2002). Physical delivery versus cash settlement:an empirical study on the feeder cattle contract. Journal of Empirical Finance, 9(4), 361-371.
Lein, D. & Tse, Y. K. (2006). A survey of physical delivery versus cash settlement in futures contracts. International Review of Economics & Finance, 15(1), 15-29.
Masood, S. & Chary, T. S. (2016). Performance of commodity derivative markets in India. Amity Journal of Finance, 1(1), 131-148.
MCX India. (2019). Retrieved from https://www.mcxindia.com/
Niti Aayog. (2016). Evaluation Report on Efficacy of Minimum Support Prices (MSP) on Farmers. New Delhi: NITI AAYOG.
Planning Commission. (2006). The Working Group on Risk Management in Agriculture. New Delhi: NITI AAYOG.
Reserve Bank of India. (2006). Report of the working group to suggest measures to assist distressed farmers. Mumbai: Reserve Bank of India.
Vasudeva, V. (2017, July 22). What is the lowdown on minimum support price for crops? The Hindu, 3.
Copyright (c) 2020 Sree Rama Murthy Y
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.