Wetterderivate: Ein Instrument im Risikomanagement fÃ¼r die Landwirtschaft?
The risks associated with farming activities are likely to increase in the future. It, therefore, appears worthwhile to analyse new risk management instruments. This paper investigates weather derivatives for which a market has already emerged in the USA. Contrary to traditional financial derivatives, their payoff is determined by future weather events, such as temperature or precipitation. Thus, they hedge risks which result from climate. Since they address production risks they are complementary to instruments that hedge price risks, such as future markets. The objective of the paper is to evaluate the economic impacts of weather derivatives and to assess their potential as farm level instruments of risk management. After outlining the main characteristics and the functioning of weather derivatives and their emergence, emphasis is placed on model calculations to quantify farm level impacts. The potato farm is used as a case study. Empirical data on yields and weather variables are taken from an experiment station of the Chamber of Agriculture at Hanover, Germany. After studying the relationship between yields and weather variables, the findings are used to design an option based on a precipitation index. Stochastic simulation is then used to assess the effects on the probability distribution of revenues. The results show that weather derivatives can be useful instruments of risk management in agriculture. Since there is still a lack of knowledge with respect to some of their economic impacts, further research is needed. This refers to the choice of suitable commodities and weather indexes, the contractual design and methodological aspects of pricing and of integrating weather derivatives into the risk management of farms. Last but not least, the question has to be answered, as to which partners would be willing to accept the risk that farmers intend to reduce by means of weather derivatives.
Volume (Year): 54 (2005)
Issue (Month): 3 ()
|Contact details of provider:|| Postal: Philippstr. 13, 10115 Berlin|
Phone: +49 (0)30 2093 6305
Fax: +49 (0)30 2093 6497
Web page: http://www.gjae-online.de/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ags:gjagec:97213. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.