IDEAS home Printed from https://ideas.repec.org/a/eme/jrfpps/15265941311288086.html
   My bibliography  Save this article

Quantifying spatial basis risk for weather index insurance

Author

Listed:
  • Michael T. Norton
  • Calum Turvey
  • Daniel Osgood

Abstract

Purpose - The purpose of this paper to develop an empirical methodology for managing spatial basis risk in weather index insurance by studying the fundamental causes for differences in weather risk between distributed locations. Design/methodology/approach - The paper systematically compares insurance payouts at nearby locations based on differences in geographical characteristics. The geographic characteristics include distance between stations and differences in altitude, latitude, and longitude. Findings - Geographic differences are poor predictors of payouts. The strongest predictor of payout at a given location is payout at nearby location. However, altitude has a persistent effect on heat risk and distance between stations increases payout discrepancies for precipitation risk. Practical implications - Given that payouts in a given area are highly correlated, it may be possible to insure multiple weather stations in a single contract as a “risk portfolio” for any one location. Originality/value - Spatial basis risk is a fundamental problem of index insurance and yet is still largely unexplored in the literature.

Suggested Citation

  • Michael T. Norton & Calum Turvey & Daniel Osgood, 2013. "Quantifying spatial basis risk for weather index insurance," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 14(1), pages 20-34, January.
    • Handle: RePEc:eme:jrfpps:15265941311288086
    DOI: 10.1108/15265941311288086
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/15265941311288086/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/15265941311288086/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/15265941311288086?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mengmeng Qiang & Manhong Shen & Guanjun Xia, 2023. "The effectiveness of weather index insurance in managing mariculture production risk," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(2), pages 245-262, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jrfpps:15265941311288086. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.