Agricultural Applications Of Weather Derivatives

Jones, Travis L.

doi:10.19030/iber.v6i6.3377

Cited by 6 publications

(4 citation statements)

References 6 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…He has suggested to take up the further research to frame the effective rainfall risk hedging contracts and develop widely acceptable pricing model. Travis (2007) concluded that weather futures can be easily used to hedge agricultural volumetric risk and it leads to increase the revenue to the farmers and other agri-businesses. Barry et al (2008) suggested that index-based rainfall risk transfer products were valuable instruments for addressing the problem of crop insurance failure.…”

Section: Review Of Literaturementioning

confidence: 99%

Rainfall Index Based Futures: A Tool for Absorbing Systemic Monsoon Risk

Mr.,

Dr.

2023

ijfirm

View full text Add to dashboard Cite

Purpose:The purpose of this paper is to analyse the application and uniqueness of rainfall index-based futures for mitigating rainfall risk which impacts various segments of the economy including agriculture, banking & insurance, agro-processing, and power generation. Design/Methodology/Approach: Research studies have shown that traditional insurance markets are unable to address the problem of rainfall risk adequately. There is need for a versatile financial tool to effectively absorb the rainfall risk. Findings: The structure of Rainfall Futures Contract is presented using standard metrics as Excess Rainfall Days (ERDs) and Deficit Rainfall Days (DRDs). Practical implications: The importance of basis risk in evaluating the feasibility and effectiveness of rainfall index-based futures is examined. Originality value: Rainfall index-based futures represent an innovative financial product introduced by Chicago Mercantile Exchange.

show abstract

Section: Review Of Literaturementioning

confidence: 99%

Rainfall Index Based Futures: A Tool for Absorbing Systemic Monsoon Risk

Mr.,

Dr.

2023

ijfirm

View full text Add to dashboard Cite

show abstract

“…The momentum for creating weather derivatives were deregulation of the energy and utility industries in USA in mid-1990s [23] and extremely worm El Nino winter 1997/1998 in USA [24]. With deregulation, monopolies began to be replaced with competitive market structures and many energy and utility companies learned that while they could hedge away price risk with futures and options on energy itself, they had no instrument to hedge away weather risk that could dramatically alter the demand for or production of their products.…”

Section: Weather Derivatives As a Risk Management Tool In Energy Sectormentioning

confidence: 99%

Weather Risk Management in Energy Sector

Štulec¹,

Bakovic²,

Hruška³

2012

DAAAM Proceedings

View full text Add to dashboard Cite

The paper examines the problem of adverse weather effects on energy sector, outlines possible weather risk management strategies and presents weather derivatives as currently most effective instrument of weather protection. Weather effects both energy consumption and production, and poses significant source of risk especially when considering energy production from renewable sources. The paper presents possible applications of weather derivatives in energy sector, both in a case of energy consumption (natural gas sales) and in the case of energy production (wind power plant production). Examples are of hypothetical nature, but entities interested in weather risk management can perform necessary analysis following the proposed analogy.

show abstract

“…The major participants in the weather derivatives market include energy companies, insurance and reinsurance companies, market markers, brokers and other retail participants like agriculture, transport, entertainment and tourism firms [23]. Currently, weather derivatives contracts are listed in major derivatives exchanges like Chicago Mercantile Exchange (CME) for various cities in America, Europe and Asia [25].…”

Section: Introduction 1general Introductionmentioning

confidence: 99%

Modelling Weather Dynamics for Weather Derivatives Pricing

Sinkwembe¹

2017

View full text Add to dashboard Cite

This thesis focuses on developing an appropriate stochastic model for temperature dynamics as a means of pricing weather derivative contracts based on temperature. There are various methods for pricing weather derivatives ranging from simple one like historical burn analysis, which does not involve modeling the underlying weather variable to complex ones that require Monte Carlo simulations to achieve explicit weather derivatives contract prices, particularly the daily average temperature (DAT) dynamics models. Among various DAT models, appropriate regime switching models are considered relative better than single regime models due to its ability to capture most of the temperature dynamics features caused by urbanization, deforestation, clear skies and changes of measurement station. A new proposed model for DAT dynamics, is a two regime switching models with heteroskedastic mean-reverting process in the base regime and Brownian motion with nonzero drift in the shifted regime. Before using the model for pricing temperature derivative contracts, we compare the performance of the model with a benchmark model proposed by Elias et al. (2014), interms of the HDDs, CDDs and CAT indices. Using five data sets from different measurement locations in Sweden, the results shows that, a two regime switching models with heteroskedastic mean-reverting process gives relatively better results than the model given by Elias et al. We develop mathematical expressions for pricing futures and option contracts on HDDs, CDDs and CAT indices. The local volatility nature of the model in the base regime captures very well the dynamics of the underlying process, thus leading to a better pricing processes for temperature derivatives contracts written on various index variables. We use the Monte Carlo simulation method for pricing weather derivatives call option contracts. SammanfattningDenna avhandling fokuserar på att utveckla en lämplig stokastisk modell för temperaturdynamik som ett sätt att prissätta väderderivatkontrakt baserat p˚a temperatur. Det finns olika metoder för att prissätta väderderivat som sträcker sig fr˚an enkla som historisk bränna-analys, vilket inte innebär att man modellerar det underliggande Vädervariabel till komplexa som kräver Monte Carlo-simuleringar för att uppn˚a tydliga väderderivatkontrakt-spriser, särskilt det dagliga genomsnittet Temperatur (DAT) dynamik modeller. Bland olika DAT-modeller betraktas lämpliga regimekopplingsmodeller relativt bättre än enkla regimodeller p˚a grund av dess förm˚aga att f˚anga in de flesta av de Temperaturdynamiska egenskaper som orsakas av urbanisering, avskogning, klar himmel och förändringar av mätsta-tionen. En ny föreslagen modell för DAT-dynamik är en två Regimbytesmodeller med heteroskedastisk medel˚aterställningsprocess i basregimen och brunisk rörelse med ojämn drift i den förskjutna regimen. Innan du använder Modellen för prissättning av temperaturderivatkontrakt, jämför vi modellens prestanda med en referensmodell som föreslagits av Elias it et al. (2014), int...

show abstract

Agricultural Applications Of Weather Derivatives

Cited by 6 publications

References 6 publications

Rainfall Index Based Futures: A Tool for Absorbing Systemic Monsoon Risk

Rainfall Index Based Futures: A Tool for Absorbing Systemic Monsoon Risk

Weather Risk Management in Energy Sector

Modelling Weather Dynamics for Weather Derivatives Pricing

Contact Info

Product

Resources

About