Informal finance and rural finance policy in India: historical and contemporary perspectives

From the 1950s up to the early 1990s the All-India data show an ever-declining share of informal credit in the total outstanding debt of rural households. Contemporaneous micro-level studies, using more qualitative research methodologies, provide evidence that questions the strength of this trend, and more recent All-India credit surveys show, first, a levelling, and then a rise, in the share of rural informal credit in 1990/91 and 2000/01, respectively. By reference to findings of a study of village moneylenders in Rajasthan, the paper notes lessons to be drawn. First, informal financial agents have not disappeared from the rural financial landscape in India. Second, formal-sector financial institutions can learn much about rural financial service needs from the financial products and processes of their informal counterparts. Third, a national survey of informal agents, similar to that of the 1921 Census survey of indigenous bankers and moneylenders, would provide valuable pointers towards policy options for the sector. A recent Reserve Bank of India Report on Moneylender Legislation not only explores incentive mechanisms to better ensure fair practice, but also proposes provision for a new category of loan providers that would explicitly link the rural informal and formal financial sectors.

Closed form approximations for spread options

This article expresses the price of a spread option as the sum of the prices of two compound options. One compound option is to exchange vanilla call options on the two underlying assets and the other is to exchange the corresponding put options. This way we derive a new closed form approximation for the price of a European spread option and a corresponding approximation for each of its price, volatility and correlation hedge ratios. Our approach has many advantages over existing analytical approximations, which have limited validity and an indeterminacy that renders them of little practical use. The compound exchange option approximation for European spread options is then extended to American spread options on assets that pay dividends or incur costs. Simulations quantify the accuracy of our approach; we also present an empirical application to the American crack spread options that are traded on NYMEX. For illustration, we compare our results with those obtained using the approximation attributed to Kirk (1996, Correlation in energy markets. In: V. Kaminski (Ed.), Managing Energy Price Risk, pp. 71–78 (London: Risk Publications)), which is commonly used by traders.

Modelling the implied volatility of options on long gilt futures

This paper investigates the properties of implied volatility series calculated from options on Treasury bond futures, traded on LIFFE. We demonstrate that the use of near-maturity at the money options to calculate implied volatilities causes less mis-pricing and is therefore superior to, a weighted average measure encompassing all relevant options. We demonstrate that, whilst a set of macroeconomic variables has some predictive power for implied volatilities, we are not able to earn excess returns by trading on the basis of these predictions once we allow for typical investor transactions costs.

Pricing and hedging short sterling options using artificial neural networks

This paper compares the performance of artificial neural networks (ANNs) with that of the modified Black model in both pricing and hedging Short Sterling options. Using high frequency data, standard and hybrid ANNs are trained to generate option prices. The hybrid ANN is significantly superior to both the modified Black model and the standard ANN in pricing call and put options. Hedge ratios for hedging Short Sterling options positions using Short Sterling futures are produced using the standard and hybrid ANN pricing models, the modified Black model, and also standard and hybrid ANNs trained directly on the hedge ratios. The performance of hedge ratios from ANNs directly trained on actual hedge ratios is significantly superior to those based on a pricing model, and to the modified Black model.

Seasonality and the valuation of commodity options

Price movements in many commodity markets exhibit significant seasonal patterns. However, given an observed futures price, a deterministic seasonal component at the price level is not relevant for the pricing of commodity options. In contrast, this is not true for the seasonal pattern observed in the volatility of the commodity price. Analyzing an extensive sample of soybean, corn, heating oil and natural gas options, we find that seasonality in volatility is an important aspect to consider when valuing these contracts. The inclusion of an appropriate seasonality adjustment significantly reduces pricing errors in these markets and yields more improvement in valuation accuracy than increasing the number of stochastic factors.

Land use for England and Wales: evaluation of management options to support 'good ecological status' in surface freshwaters

This paper analyses historic records of agricultural land use and management for England and Wales from 1931 and 1991 and uses export coefficient modelling to hindcast the impact of these practices on the rates of diffuse nitrogen (N) and phosphorus (P) export to water bodies for each of the major geo-climatic regions of England and Wales. Key trends indicate the importance of animal agriculture as a contributor to the total diffuse agricultural nutrient loading on waters, and the need to bring these sources under control if conditions suitable for sustaining 'Good Ecological Status' under the Water Framework Directive are to be generated. The analysis highlights the importance of measuring changes in nutrient loading in relation to the catchment-specific baseline state for different water bodies. The approach is also used to forecast the likely impact of broad regional scale scenarios on nutrient export to waters and highlights the need to take sensitive land out of production, introduce ceilings on fertilizer use and stocking densities, and controls on agricultural practice in higher risk areas where intensive agriculture is combined with a low intrinsic nutrient retention capacity, although the uncertainties associated with the modelling applied at this scale should be taken into account in the interpretation of model output. The paper advocates the need for a two-tiered approach to nutrient management, combining broad regional policies with targeted management in high risk areas at the catchment and farm scale.

Mitigation options for sediment and phosphorus loss from winter-sown arable crops

Sediment and P inputs to freshwaters from agriculture are a major problem in the United Kingdom (UK). This study investigated mitigation options for diffuse pollution losses from arable land. Field trials were undertaken at the hillslope scale over three winters at three UK sites with silt (Oxyaquic Hapludalf), sand (Udic Haplustept), and clay (Typic Haplaquept) soils. None of the mitigation treatments was effective in every year trialled, but each showed overall average reductions in losses. Over five site years, breaking up the compaction in tramlines (tractor wheel tracks) using a tine reduced losses of sediment and P to losses similar to those observed from areas without tramlines, with an average reduction in P loss of 1.06 kg TP ha(-1) Compared to traditional plowing, TP losses under minimum tillage were reduced by 0.30 kg TT ha(-1) over five site years, TP losses under contour cultivation were reduced by 0.30 kg TP ha(-1) over two site years, and TP losses using in-field barriers were reduced by 0.24 kg TP ha(-1) over two site years. In one site year, reductions in losses due to crop residue incorporation were nor significant. Each of the mitigation options trialled. is associated with a small cost at the farm-scale of up to 5 pound ha(-1), or with cost savings. The results indicate that each of the treatments his the potential to be a cost-effective mitigation option, but that tramline management is the most promising treatment, because tramlines dominate sediment and P transfer in surface runoff from arable hillslopes.

Participatory Farm Management methods for assessing the suitability of potential innovations. A case study on green manuring options for tomato producers in Ghana

This paper examines the potential of using Participatory Farm Management methods to examine the suitability of a technology with farmers prior to on-farm trials. A study examining the suitability of green manuring as a technology for use with wet season tomato producers in Ghana is described. Findings from this case-study demonstrate that Participatory Budgeting can be used by farmers and researchers to analyse current cultivation practices, identify the options for including green manures into the system and explore the direct and wider resource implications of the technology. Scored-Causal Diagrams can be used to identify farmers' perceptions of the relative importance of the problem that the technology seeks to address. The use of the methods in this examine evaluation process appears to have the potential to improve the effectiveness and efficiency of the adaptive research process. This ensures that technologies subsequently examined in trials ate relevant to farmers' interests, existing systems and resources, thereby increasing the chances of farmer adoption. It is concluded that this process has potential for use-with other technologies and in other farming systems. (C) 2002 Elsevier Science Ltd. All rights reserved.

Fragmentation or creative diversity? Options in the provision of land management advisory services

Rural land managers need access to sound advice and information to respond to pressures from environmental regulations, declining farm incomes, changing patterns in international trade and new institutional arrangements within the domestic food chain. Governments have cut back their provision of advisory services but need more than ever to influence land managers' decisions to achieve a growing array of policy objectives: The paper develops a conceptual framework for analysing advisory services and concludes, through a review of sixteen case studies, that the needs of both governments and land managers can be met by a diverse mixture of private and public sector provision. (C) 2003 Elsevier Ltd. All rights reserved.