Weather Derivatives: A New Class of Financial Instruments

Li, Anlong; Wei, Jason Zhanshun; Rotman, Joseph L.

doi:10.2139/ssrn.1016123

Cited by 45 publications

(33 citation statements)

References 2 publications

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“…Sakurai and Reardon 1997;Skees 1999, Skees and Ayurzana 2002, Barnett and Mahul 2007, Barnett, Barrett and Skees 2008) the first successful implementation has been realized in the U.S. in 1997: after the deregulation of the energy sector, energy providers increasingly insured themselves against mild winters to compensate for potential loss of revenue due to the decreased use of energy for heating (Cao Li and Wei 2003). Since then, stakeholders in the sectors of tourism, agriculture, travel and event organization have engaged in the trading of weather derivatives which became a 40 billion dollar business for the Chicago Mercantile Exchange alone in 2006 (Ginocchio 2008).…”

Section: Weather Index Insurance Literature and Challengesmentioning

confidence: 99%

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Fuchs

Wolff

2011

American J Agri Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Recently, Weather Index Insurance (WII) has received considerable attention as a tool to insure farmers against weather related risks, particularly in developing countries. Donor organizations, local governments, insurance companies, development economists as well as agricultural economists are discussing the costs and benefits of WII. While the literature on WII has mainly focused on many cases in Africa and Asia, in this article we analyze the WII program in Mexico, which is one of the largest WII programs worldwide. In this context we discuss potentially important spill-over effects on related markets which so far have not been considered in the academic literature. First, we argue that WII creates disincentives to invest in other non-insured crops leading to potential overspecialization and monoculture. Secondly, WII generates disincentives to invest in irrigation systems because farmers are insured only as long as production takes place on non-irrigated land. Third, in case of catastrophic events food prices can potentially inflate with indemnity payments at the expense of the uninsured poor. We also suggest that in Mexico the thresholds of the weather index be (continuously) re-calibrated in order to adjust for the development of drought resistant seeds. Finally, the index could relatively easily be extended to account for precipitation variances. We argue that these factors and spillover effects should be accounted for in cost benefit analysis...

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Section: Weather Index Insurance Literature and Challengesmentioning

confidence: 99%

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Fuchs

Wolff

2011

American J Agri Economics

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“…However, this method is less applicable for weather derivatives for the underlying variables such as temperature, rainfall, snowfall, wind etc. which tend to follow recurrent and predictable patterns (Cao, Li & Wei, 2003). Yet, there is still room for the use of the actuarial method.…”

Section: Actuarial Methodsmentioning

confidence: 99%

“…Weather risk is a crucial element of overall risk management for a wide variety of businesses (Cao, Li & Wei, 2003) in energy, agriculture, food, tourism and hospitality sectors. Particularly, hospitality businesses such as hotels, restaurants and cafes are highly vulnerable when faced with unexpected weather conditions.…”

Section: Introductionmentioning

confidence: 99%

Using Weather-Related Derivative Products for Tourism and Hospitality Businesses

Beyazit¹,

Koç²

2012

Visions for Global Tourism Industry - Creating and Sustaining Competitive Strategies

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“…Además, según Cao, Li y Wei (2003), el mercado de derivados climáticos fue creado a mediados de 1990, como consecuencia de la desregulación en las industrias de energía y servicios públicos en Estados Unidos. Estas compañías buscaban instrumentos de cobertura para hacer frente a la creciente competencia y la incertidumbre en la demanda.…”

Section: Mercado De Los Derivados Climáticosunclassified

Valoración de opciones climáticas: una aplicación para el sector arrocero de Yopal

Arayón¹,

Castro²

2017

ODE

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En este trabajo se presenta el modelo de valoración de opciones climáticas desarrollado por Alaton et al. (2002) y se propone una aplicación de este al emplear la técnica de simulación de Montecarlo (MC), con el objetivo de valorar una opción barrera (como opción climática) para el sector arrocero de Yopal (Colombia), al involucrar umbrales críticos de temperatura para el cultivo. De esta forma, el comportamiento de la temperatura (subyacente) se modela mediante la técnica de mc asumiendo un proceso estocástico con reversión a la media del tipo Ornstein- Uhlenbeck. Los resultados encontrados muestran que este tipo de mecanismos de cobertura de riesgo se convierten en una alternativa factible y con gran potencial para su implementación.

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Weather Derivatives: A New Class of Financial Instruments

Cited by 45 publications

References 2 publications

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico

Using Weather-Related Derivative Products for Tourism and Hospitality Businesses

Valoración de opciones climáticas: una aplicación para el sector arrocero de Yopal

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