IDEAS home Printed from https://ideas.repec.org/a/vls/finstu/v17y2013i3p19-32.html
   My bibliography  Save this article

Qualitative Risk Coverage In Agriculture Through Derivative Financial Instruments Based On Selyaninov Indices

Author

Listed:
  • KEVORCHIAN, Cristian

    (Institute of Agricultural Economics, Romanian Academy)

  • GAVRILESCU, Camelia

    (Institute of Agricultural Economics, Romanian Academy)

  • HURDUZEU, Gheorghe

    (Institute of Agricultural Economics, Romanian Academy)

Abstract

The financial product designed by the authors belongs to the class of derivative financial instruments, having “weather conditions” as basic variable; the settlement is oriented to options on OTC markets, which are able to adapt to the farmers’ risk exposure level. Unfortunately, they cause certain problems at position liquidation, and, moreover, due to lack of stock prices, they require proper evaluation models. The transformation of the weather risk into financial risk and its trading on financial markets relies on the willingness for risk taking of those groups of farmers which are using this particular financial instrument. One needs to emphasize that the proposed product is covering the risk for the production segment only of a specific crop that cannot be covered by the regular agricultural insurance, and it is based upon the Selyaninov index. The calculation formulae for a put type option will be presented: pay-off, strike, tick, and the level of the insurance premium for cereals. The reference weather stations will be: Tulcea, Brăila, Buzău, Galaţi, Focşani and Medgidia.

Suggested Citation

  • KEVORCHIAN, Cristian & GAVRILESCU, Camelia & HURDUZEU, Gheorghe, 2013. "Qualitative Risk Coverage In Agriculture Through Derivative Financial Instruments Based On Selyaninov Indices," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 17(3), pages 19-32.
    • Handle: RePEc:vls:finstu:v:17:y:2013:i:3:p:19-32
    as

    Download full text from publisher

    File URL: http://www.icfm.ro/RePEc/vls/vls_pdf/vol17i3p19-32.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Skees, Jerry R., 2000. "A role for capital markets in natural disasters: a piece of the food security puzzle," Food Policy, Elsevier, vol. 25(3), pages 365-378, June.
    2. Jewson,Stephen & Brix,Anders, 2005. "Weather Derivative Valuation," Cambridge Books, Cambridge University Press, number 9780521843713, September.
    3. Vedenov, Dmitry V. & Barnett, Barry J., 2004. "Efficiency of Weather Derivatives as Primary Crop Insurance Instruments," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(3), pages 1-17, December.
    4. Patrick L. Brockett & Mulong Wang & Chuanhou Yang, 2005. "Weather Derivatives and Weather Risk Management," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 8(1), pages 127-140, March.
    5. Jerry R. Skees & Barry J. Barnett, 1999. "Conceptual and Practical Considerations for Sharing Catastrophic/Systemic Risks," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 21(2), pages 424-441.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Cristian KEVORCHIAN & Camelia GAVRILESCU & Gheorghe HURDUZEU, 2015. "An Approach Based On Big Data And Machine Learning For Optimizing The Management Of Agricultural Production Risks," Agricultural Economics and Rural Development, Institute of Agricultural Economics, vol. 12(2), pages 117-128.
    2. Kevorchian, Cristian & Gavrilescu, Camelia, 2015. "Use of maximum entropy in estimating production risks in crop farms," MPRA Paper 69377, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Woodard, Joshua D. & Garcia, Philip, 2008. "Weather Derivatives, Spatial Aggregation, and Systemic Risk: Implications for Reinsurance Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(1), pages 1-18, April.
    2. Boyle, Colin F.H. & Haas, Jannik & Kern, Jordan D., 2021. "Development of an irradiance-based weather derivative to hedge cloud risk for solar energy systems," Renewable Energy, Elsevier, vol. 164(C), pages 1230-1243.
    3. Zhang, Li, 2008. "Three essays on agricultural risk and insurance," ISU General Staff Papers 2008010108000016857, Iowa State University, Department of Economics.
    4. Buchholz, Matthias & Musshoff, Oliver, 2014. "The role of weather derivatives and portfolio effects in agricultural water management," Agricultural Water Management, Elsevier, vol. 146(C), pages 34-44.
    5. Turvey, Calum G. & Norton, Michael, 2008. "An Internet-Based Tool for Weather Risk Management," Agricultural and Resource Economics Review, Cambridge University Press, vol. 37(1), pages 63-78, April.
    6. Lannoo, Karel & Thomadakis, Apostolos, 2020. "Derivatives in Sustainable Finance," ECMI Papers 29791, Centre for European Policy Studies.
    7. Zhiwei Shen & Martin Odening, 2013. "Coping with systemic risk in index-based crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 44(1), pages 1-13, January.
    8. Markus Stowasser, 2011. "Modelling rain risk: a multi-order Markov chain model approach," Journal of Risk Finance, Emerald Group Publishing, vol. 13(1), pages 45-60, December.
    9. Joshua D. Woodard & Philip Garcia, 2008. "Basis risk and weather hedging effectiveness," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 99-117, May.
    10. Raucci, Gian Lucca & Silveira, Rodrigo Lanna F. & Capitani, Daniel H D, 2018. "Development Of Weather Derivatives: Evidence From Brazilian Soybean Market," 2018 Annual Meeting, August 5-7, Washington, D.C. 274105, Agricultural and Applied Economics Association.
    11. Haruyoshi Ito & Jing Ai & Akihiko Ozawa, 2016. "Managing Weather Risks: The Case of J. League Soccer Teams in Japan," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(4), pages 877-912, December.
    12. Skees, Jerry & Varangis, Panos & Larson, Donald & Siegel, Paul, 2002. "Can financial markets be tapped to help poor people cope with weather risks ?," Policy Research Working Paper Series 2812, The World Bank.
    13. Andrea Martínez Salgueiro & Maria-Antonia Tarrazon-Rodon, 2021. "Weather derivatives to mitigate meteorological risks in tourism management: An empirical application to celebrations of Comunidad Valenciana (Spain)," Tourism Economics, , vol. 27(4), pages 591-613, June.
    14. Mußhoff, O. & Odenin, M. & Wei, X., 2007. "Zur Quantifizierung des Basisrisikos von Wetterderivaten," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 42, March.
    15. Alan Fuchs & Hendrik Wolff, 2011. "Concept and Unintended Consequences of Weather Index Insurance: The Case of Mexico," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 505-511.
    16. Miguel, Fusco & Dario, Bacchini & Esteban Otto, Thomasz, 2014. "Riesgo Agropecuario: Incidencia Económica e Innovaciones para su mitigación. El caso de Argentina [Agricultural Risk Managment: Economic Incidence and Mitigation Innovations. The Case of Argentina]," MPRA Paper 56408, University Library of Munich, Germany.
    17. Jean-Louis Bertrand & Xavier Brusset, 2018. "Managing the financial consequences of weather variability," Journal of Asset Management, Palgrave Macmillan, vol. 19(5), pages 301-315, September.
    18. Musshoff, Oliver & Hirschauer, Norbert, 2008. "Hedging von Mengenrisiken in der Landwirtschaft – Wie teuer dürfen „ineffektive“ Wetterderivate sein?," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 57(05), pages 1-12.
    19. Jr‐Wei Huang & Sharon S. Yang & Chuang‐Chang Chang, 2018. "Modeling temperature behaviors: Application to weather derivative valuation," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(9), pages 1152-1175, September.
    20. Ivana STULEC & Kristina PETLJAK & Tomislav BAKOVIC, 2016. "Effectiveness of weather derivatives as a hedge against the weather risk in agriculture," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 62(8), pages 356-362.

    More about this item

    Keywords

    Selyaninov index; weather risk; hedging; derivative instruments; options;
    All these keywords.

    JEL classification:

    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    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:vls:finstu:v:17:y:2013:i:3:p:19-32. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc 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 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: Daniel Mateescu (email available below). General contact details of provider: https://edirc.repec.org/data/cfiarro.html .

    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.