Indifference Pricing of Weather Insurance

Wei Xu, Martin Odening and Oliver Musshoff

No 9267, 101st Seminar, July 5-6, 2007, Berlin Germany from European Association of Agricultural Economists

Abstract: This article develops an Indifference Pricing model for a weather derivative that is traded over the counter. The model is used to calculate ask and bid prices for a put option on a weather index in Germany. We find that under moderate risk aversion the maximal bid prices of grain producers exceed the minimal sell prices of insurers only for a few regions and crops, due to the presence of basis risk. Another finding is that the actuarially fair price may lead to wrong conclusions about the market potential of weather insurance.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 18
Date: 2007
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaa101:9267

DOI: 10.22004/ag.econ.9267

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