Weather-based instruments in the context of whole-farm risk management
AbstractRecent and presumable future developments tend to increase the risks associated with farming activities. These include climate risks, which have always played an important role in farming. Weather-based instruments can be valuable tools to reduce the risk associated with unfavourable climate events. However, a number of factors could limit the hedging effectiveness of these tools. These factors include basis risk, the impacts of remaining price uncertainty, and diversification effects. This paper addresses the influence of each of these factors. In the final section, an integrated approach for a comprehensive assessment of weather derivatives and other hedging instruments is proposed that is based on the concept of portfolio optimization.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Agricultural Finance Review.
Volume (Year): 68 (2008)
Issue (Month): 1 (September)
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- Leif Erec Heimfarth & Oliver Musshoff, 2011. "Weather index-based insurances for farmers in the North China Plain: An analysis of risk reduction potential and basis risk," Agricultural Finance Review, Emerald Group Publishing, vol. 71(2), pages 218-239, July.
- Hotopp, Henning & MuÃŸhoff, Oliver, 2012. "Can rent adjustment clauses reduce the income risk of farms?," International Journal of Agricultural Management, Institute of Agricultural Management & International Farm Management Association, vol. 1(4), July.
- Kellner, Ulla & Musshoff, Oliver, 2011. "Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance," Agricultural Systems, Elsevier, vol. 104(8), pages 645-653, October.
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