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Risk Reduction In Corn Production With Weather Put Option

  • Markovic, Todor
  • Martinovska-Stojcheska, Aleksandra
  • Ivanovic, Sanjin
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    Since the late 1990s scientists have discussed the use of weather derivatives to hedge weather conditioned yield volatility in the agricultural sector. The hedging efficiency is depending on the contract design (Weather-Index, Strike-Level, Tick-Size). The basis risk consisting of the basis risk of production and the basis geographical risk, however, remain with the farmer. In this paper we quantify the risk reducing effect of rainfall put-options by applying a stochastic simulation. For this simulation we analyzed the yield data we obtained from corn producing farm located in the central part of Srem, Serbia. A nearby weather station contributed the meteorological data.

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    File URL: http://purl.umn.edu/139496
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    Paper provided by European Association of Agricultural Economists in its series 132nd Seminar, October 25-27, 2012, Skopje, Republic of Macedonia with number 139496.

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    Date of creation: 25 Oct 2012
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    Handle: RePEc:ags:eaa132:139496
    Contact details of provider: Web page: http://www.eaae.org
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    1. Musshoff, Oliver & Odening, Martin & Xu, Wei, 2005. "Zur Bewertung von Wetterderivaten als innovative Risikomanagementinstrumente in der Landwirtschaft," German Journal of Agricultural Economics, Humboldt-Universitaet zu Berlin, Department for Agricultural Economics, vol. 54(4).
    2. 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(03), December.
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