Interest is growing in weather insurance within the agricultural sector but its use has been limited by the difficulty in defining the appropriate weather event and the lack of agreement on how to price the product. In this paper we develop a new insurance pricing method for weather insurance under situations where volume returns depend not only on the occurrence of the weather event, but also its timing. The method is applied to the pricing of weather insurance for ice wine in the Niagara Peninsula of southern Ontario. 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. This random strike, we developed a systematic approach to valuing the insurance using first, the single index model to capture inter-temporal covariance effects, and then a Monte Carlo simulation protocol to estimate the premium. While this study investigated a model unique to ice wine production in particular, the ideas can be extended to a number of other agricultural situations in which weather affects critical timing in the production process.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2005 Annual meeting, July 24-27, Providence, RI with number
19255.
Length: Date of creation: 2005 Date of revision: Handle: RePEc:ags:aaea05:19255
Contact details of provider: Postal: 555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202 Phone: (414) 918-3190 Fax: (414) 276-3349 Email: Web page: http://www.aaea.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (AgEcon Search).
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Richards, Timothy J. & Manfredo, Mark R. & Sanders, Dwight R., 2004.
"Pricing Weather Derivatives,"
Working Papers
28536, Arizona State University, Morrison School of Agribusiness and Resource Management.
[Downloadable!]