Zur Bewertung von Wetterderivaten als innovative Risikomanagementinstrumente in der Landwirtschaft

Oliver Musshoff, Martin Odening and Wei Xu

German Journal of Agricultural Economics, 2005, vol. 54, issue 04, 13

Abstract: The importance of weather as a production factor in agriculture is well established long time and a significant portion of yield fluctuations is caused by weather risks. Traditionally, farmers have tried to hedge against unfavorable weather using insurance, such as crop insurance. In recent years a new class of instruments, so called weather derivatives, have emerged. They allows to reduce weather based risks as well. Weather derivatives are financial market products such as forwards, futures, options and swaps, that have a weather component such as temperature or rainfall. Although weather derivatives have some advantages compared to traditional insurance, their trading volume is still rather small. One reason (among others) for why potential users hesitate to enter the market are the difficulties to determine a fair price for these products. Financial pricing methods such as the Black-Scholes formula cannot be directly applied since weather is not a tradable asset. In this article, various pricing methods are investigated and applied to actual weather data. One important finding is that there are considerable differences between the pricing methods. We identify the strengths and weaknesses of the pricing methods and give some recommendations for their application. Our results may be relevant not only for producers but also for potential sellers of weather derivatives.

Keywords: Financial Economics; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://ageconsearch.umn.edu/record/97216/files/2_Musshoff.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:gjagec:97216

DOI: 10.22004/ag.econ.97216

Access Statistics for this article

More articles in German Journal of Agricultural Economics from Humboldt-Universitaet zu Berlin, Department for Agricultural Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().