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Index based compensation for weather risk in the Italian agriculture. A feasibility study based on actual historic data

Author

Listed:
  • Cafiero, Carlo
  • Angelucci, Federica
  • Capitanio, Fabian
  • Vollaro, Michele

Abstract

The paper explores the feasibility of the use of weather index based derivatives for farms' risk management in an Italian province. Based on a combination of detailed local weather data and of data on farms' yields, various possible weather indexes are found that are highly correlated with yields of the major crops in the area. Simulations show that hedging through such index based derivatives can be effective in protecting the stability of farms' incomes, at a cost that is likely to be much lower than that of the current system of subsidized crop insurance and ex-post compensation.

Suggested Citation

  • Cafiero, Carlo & Angelucci, Federica & Capitanio, Fabian & Vollaro, Michele, 2007. "Index based compensation for weather risk in the Italian agriculture. A feasibility study based on actual historic data," 101st Seminar, July 5-6, 2007, Berlin Germany 9261, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaa101:9261
    DOI: 10.22004/ag.econ.9261
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    Keywords

    Production Economics; Risk and Uncertainty;

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