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Weather derivatives: Concept and application for their use in South Africa

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  • Geyser, J.M.

Abstract

Recent innovations in energy markets suggest the possibility of addressing agricultural risk factors by issuing derivatives on weather elements. Such instruments appear particularly attractive, as asymmetric information and loss adjustment issues do not affect them. This article first describes the concept, functioning and application of weather derivatives. It then examines the feasibility of rainfall derivatives to manage agricultural production risk in South Africa by evaluating the merits of rainfall options, and suggesting an option strategy, as a yield risk management tool. The use of rainfall derivatives in South Africa is likely to increase in future as capital markets, financial institutions, insurance companies, crop insurance companies and hedge funds collectively organize themselves to share and distribute weather risks.

Suggested Citation

  • Geyser, J.M., 2004. "Weather derivatives: Concept and application for their use in South Africa," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 43(4), pages 1-21, December.
    • Handle: RePEc:ags:agreko:9490
    DOI: 10.22004/ag.econ.9490
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    References listed on IDEAS

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    Cited by:

    1. Angelos Prentzas & Thomas Bournaris & Stefanos Nastis & Christina Moulogianni & George Vlontzos, 2024. "Enhancing Sustainability through Weather Derivative Option Contracts: A Risk Management Tool in Greek Agriculture," Sustainability, MDPI, vol. 16(17), pages 1-18, August.
    2. Dileep N & G. KOTRESHWAR, 2023. "Theoretical framework to introduce rainfall index-based futures contracts in India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(635), S), pages 183-198, Summer.
    3. Július Bemš & Caner Aydin, 2022. "Introduction to weather derivatives," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 11(3), May.

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