A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture
The paper deals with weather derivatives as the potentially effective risk management tool for agricultural enterprises seeking to mitigate their income exposure to variations in weather conditions. Design and valuation of the weather derivatives is an interdisciplinary approach covering agrometeoro...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Wiley
2013-01-01
|
| Series: | Advances in Meteorology |
| Online Access: | http://dx.doi.org/10.1155/2013/146036 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1832545404466495488 |
|---|---|
| author | Jindrich Spicka Jiri Hnilica |
| author_facet | Jindrich Spicka Jiri Hnilica |
| author_sort | Jindrich Spicka |
| collection | DOAJ |
| description | The paper deals with weather derivatives as the potentially effective risk management tool for agricultural enterprises seeking to mitigate their income exposure to variations in weather conditions. Design and valuation of the weather derivatives is an interdisciplinary approach covering agrometeorology, statistics, mathematical modeling, and financial and risk management. This paper first offers an overview of data sources and then methods of design and valuation of weather derivatives at the regional level. The accompanied case study focuses on cultivation of cereals (wheat and barley) in the Czech Republic. However, its generalizability is straightforward. The analysis of key growing phases of cereals is based on regression analysis using weather indices as the independent variables and crop yields as dependent variables. With the bootstrap tool, the burn analysis is considered as useful tool for estimating uncertainty about the payoff, option price, and statistics of probability distribution of revenues. The results show that the spatial and production basis risks reduce the efficiency of the weather derivatives. Finally, the potential for expansion of weather derivatives remains in the low income countries of Africa and Asia with systemic weather risk. |
| format | Article |
| id | doaj-art-dd806c4ac635482aa3fc6649450713c7 |
| institution | Kabale University |
| issn | 1687-9309 1687-9317 |
| language | English |
| publishDate | 2013-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Advances in Meteorology |
| spelling | doaj-art-dd806c4ac635482aa3fc6649450713c72025-02-03T07:26:02ZengWileyAdvances in Meteorology1687-93091687-93172013-01-01201310.1155/2013/146036146036A Methodical Approach to Design and Valuation of Weather Derivatives in AgricultureJindrich Spicka0Jiri Hnilica1Department of Business Economics, University of Economics, Prague, W. Churchill Square 4, 130 67 Prague 3, Czech RepublicDepartment of Business Economics, University of Economics, Prague, W. Churchill Square 4, 130 67 Prague 3, Czech RepublicThe paper deals with weather derivatives as the potentially effective risk management tool for agricultural enterprises seeking to mitigate their income exposure to variations in weather conditions. Design and valuation of the weather derivatives is an interdisciplinary approach covering agrometeorology, statistics, mathematical modeling, and financial and risk management. This paper first offers an overview of data sources and then methods of design and valuation of weather derivatives at the regional level. The accompanied case study focuses on cultivation of cereals (wheat and barley) in the Czech Republic. However, its generalizability is straightforward. The analysis of key growing phases of cereals is based on regression analysis using weather indices as the independent variables and crop yields as dependent variables. With the bootstrap tool, the burn analysis is considered as useful tool for estimating uncertainty about the payoff, option price, and statistics of probability distribution of revenues. The results show that the spatial and production basis risks reduce the efficiency of the weather derivatives. Finally, the potential for expansion of weather derivatives remains in the low income countries of Africa and Asia with systemic weather risk.http://dx.doi.org/10.1155/2013/146036 |
| spellingShingle | Jindrich Spicka Jiri Hnilica A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture Advances in Meteorology |
| title | A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture |
| title_full | A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture |
| title_fullStr | A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture |
| title_full_unstemmed | A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture |
| title_short | A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture |
| title_sort | methodical approach to design and valuation of weather derivatives in agriculture |
| url | http://dx.doi.org/10.1155/2013/146036 |
| work_keys_str_mv | AT jindrichspicka amethodicalapproachtodesignandvaluationofweatherderivativesinagriculture AT jirihnilica amethodicalapproachtodesignandvaluationofweatherderivativesinagriculture AT jindrichspicka methodicalapproachtodesignandvaluationofweatherderivativesinagriculture AT jirihnilica methodicalapproachtodesignandvaluationofweatherderivativesinagriculture |