Pricing Weather Insurance with a Random Strike Price: The Ontario Ice-Wine Harvest

Alfons Weersink and Szu-Hsuan Celia Chiang

American Journal of Agricultural Economics, 2006, vol. 88, issue 3, 696-709

Abstract: Weather insurance within the agricultural sector has been limited by the difficulty in defining the appropriate weather event and in pricing the product. We develop a new pricing method for weather insurance under situations where returns depend not only on the occurrence of the weather event, but also its timing. The method is used to price weather insurance for ice wine. Because the harvest quantity of grapes for ice wine degrades over time, the strike value on the weather event measured as harvestable hours is random. We develop a Monte Carlo method to estimate the premium. Copyright 2006, Oxford University Press.

Date: 2006
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