Weather Derivatives and Crop Insurance in China
Changhao Guo and
Gerrit van Kooten
No 2013-02, Working Papers from University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group
The effectiveness of financial weather derivatives to hedge against risk in agriculture has not been well demonstrated; therefore, this risk hedging instrument has only been slowly adopted. The current study analyzes the hedging efficiency of weather index derivatives for corn production in Northeast China. It has two purposes: (1) to identify potential weather variables, such as cumulative rainfall or growing degree days, that impact corn yields; and (2) to analyze the efficiency of financial weather derivatives under varying strike values, where efficiency is defined in terms of its benefit to farmers. Regression results indicate that cumulative rainfall is important for crop production in the study region, and that, under some circumstances, it is efficient to use a weather-indexed financial derivatives to hedge the corresponding risk.
Keywords: financial weather derivatives; climate risk; corn production; rainfall (search for similar items in EconPapers)
JEL-codes: Q14 Q15 Q18 (search for similar items in EconPapers)
Pages: 29 pages
New Economics Papers: this item is included in nep-agr, nep-ias, nep-rmg and nep-tra
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Working Paper: Weather Derivatives and Crop Insurance in China (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:rep:wpaper:2013-02
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