Developing and Pricing Precipitation Insurance

Steven W. Martin, Barry J. Barnett, Keith H. Coble

Research output: Contribution to journalArticlepeer-review

70 Scopus citations

Abstract

Production agriculture and agribusiness are exposed to many weather-related risks. Recent years have seen the emergence of an increased interest in weather-based derivatives as mechanisms for sharing risks due to weather phenomena. In this study, a unique precipitation derivative is proposed that allows the purchaser to specify the parameters of the indemnity function. Pricing methods are presented in the context of a cotton harvest example from Mississippi. Our findings show a potential for weather derivatives to serve niche markets within U.S. agriculture.

Original languageEnglish
Pages (from-to)261-274
Number of pages14
JournalJournal of Agricultural and Resource Economics
Volume26
Issue number1
StatePublished - Jul 2001

Keywords

  • Cross-hedging
  • Precipitation insurance
  • Risk
  • Weather derivative

ASJC Scopus subject areas

  • Animal Science and Zoology
  • Agronomy and Crop Science
  • Economics and Econometrics

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