In this study we use the real options theory to assess a new potato price insurance policy from the growers’ perspective. This policy was offered in five Spanish provinces in 2003 and 2004. It was designed as a ‘parametric’ insurance that does not take into account the insurance subscriber’s sale price. It is based on a potato price index composed of national and international market prices. As it is completely unconnected with the grower’s economic results, the insurance policy is similar to a put option contract. Our results show that the policy is not very appealing to growers. The inter-annual cyclical pattern of the growers’ prices is troublesome for setting policy premiums that are both actuarially sound and attractive to the growers. This would explain why very few farmers contracted a price insurance policy. Another reason is the identified basis risk between the index and the actual sale price.

Key words: Real options, agricultural insurance, asiatic options, project evaluations.
JEL classification: Q-13, Q-14, G-22, G-13.