IDEAS home Printed from https://ideas.repec.org/a/caa/jnlage/v62y2016i8id188-2015-agricecon.html
   My bibliography  Save this article

Effectiveness of weather derivatives as a hedge against the weather risk in agriculture

Author

Listed:
  • Ivana STULEC

    (Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia)

  • Kristina PETLJAK

    (Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia)

  • Tomislav BAKOVIC

    (Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia)

Abstract

Weather affects the economies worldwide and all economic sectors are to some extent weather sensitive. Agriculture is traditionally highly weather sensitive. While the catastrophic impact of weather has been long recognized, studied and managed the non-catastrophic weather risk gains in importance as the climate change becomes more pronounced. Weather derivatives provide a flexible management solution for the non-catastrophic weather risk. The paper presents weather derivatives as a new weather risk management tool and reviews and discusses the effectiveness of their application in agriculture

Suggested Citation

  • 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.
    • Handle: RePEc:caa:jnlage:v:62:y:2016:i:8:id:188-2015-agricecon
    DOI: 10.17221/188/2015-AGRICECON
    as

    Download full text from publisher

    File URL: http://agricecon.agriculturejournals.cz/doi/10.17221/188/2015-AGRICECON.html
    Download Restriction: free of charge
    File URL: http://agricecon.agriculturejournals.cz/doi/10.17221/188/2015-AGRICECON.pdf
    Download Restriction: free of charge
    File URL: https://libkey.io/10.17221/188/2015-AGRICECON?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Juliusz Pres, 2009. "Measuring Non-Catastrophic Weather Risks for Businesses," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 34(3), pages 425-439, July.
    2. 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.
    3. Roll, Richard, 1984. "Orange Juice and Weather," American Economic Review, American Economic Association, vol. 74(5), pages 861-880, December.
    4. Chen, Gang & Roberts, Matthew C. & Thraen, Cameron S., 2006. "Managing Dairy Profit Risk Using Weather Derivatives," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(3), pages 1-14, December.
    5. Josef TAUŠER & Radek ČAJKA, 2014. "Weather derivatives and hedging the weather risks," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 60(7), pages 309-313.
    6. 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.
    7. Daniele Simone Torriani & Pierluigi Calanca & Martin Beniston & Jürg Fuhrer, 2008. "Hedging with weather derivatives to cope with climate variability and change in grain maize production," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 67-81, May.
    8. repec:eme:mfppss:v:33:y:2007:i:4:p:246-252 is not listed on IDEAS
    9. Mark Manfredo & Timothy Richards, 2009. "Hedging with weather derivatives: a role for options in reducing basis risk," Applied Financial Economics, Taylor & Francis Journals, vol. 19(2), pages 87-97.
    10. 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.
    11. Xiaohui Deng & Barry J. Barnett & Dmitry V. Vedenov & Joe W. West, 2007. "Hedging dairy production losses using weather‐based index insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 36(2), pages 271-280, March.
    12. 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.
    13. Daniele Simone Torriani & Pierluigi Calanca & Martin Beniston & Jürg Fuhrer, 2008. "Hedging with weather derivatives to cope with climate variability and change in grain maize production," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 67-81, May.
    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. Lina Novickyté, 2019. "Risk in agriculture: An overview of the theoretical insights and recent development trends during last decade - A review," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 65(9), pages 435-444.
    2. Mr. Dileep N, 2023. "Comparison of Rainfall and GDP: Feasibility of Introducing Rainfall Derivatives in the Indian Weather Risk Market," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 149-164.
    3. Haoyu Wang & Yuanfeng Zhao, 2024. "Do Weather Derivatives Mitigate the Revenue Risk of Farmers?—The Case of Tongliao, Inner Mongolia, China," Sustainability, MDPI, vol. 16(3), pages 1-16, January.
    4. Mr. Dileep N & Dr. G. Kotreshwar, 2023. "Rainfall Index Based Futures: A Tool for Absorbing Systemic Monsoon Risk," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 13(1), pages 79-87.
    5. Gregory, Richard P., 2024. "Risk premiums from temperature trends," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 505-525.

    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. Å tulec, Ivana & Petljak, Kristina & Naletina, Dora, 2019. "Weather impact on retail sales: How can weather derivatives help with adverse weather deviations?," Journal of Retailing and Consumer Services, Elsevier, vol. 49(C), pages 1-10.
    2. Ivana Štulec, 2017. "Effectiveness of Weather Derivatives as a Risk Management Tool in Food Retail: The Case of Croatia," IJFS, MDPI, vol. 5(1), pages 1-15, January.
    3. 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.
    4. Schmidt, Lorenz & Odening, Martin & Schlanstein, Johann & Ritter, Matthias, 2022. "Exploring the weather-yield nexus with artificial neural networks," Agricultural Systems, Elsevier, vol. 196(C).
    5. 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.
    6. 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.
    7. Andrea Martínez Salgueiro & Maria-Antonia Tarrazon-Rodon, 2020. "Approaching rainfall-based weather derivatives pricing and operational challenges," Review of Derivatives Research, Springer, vol. 23(2), pages 163-190, July.
    8. 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.
    9. Banerjee, Chirantan & Berg, Ernst, 2011. "Efficiency Of Wind Indexed Typhoon Insurance For Rice," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114240, European Association of Agricultural Economists.
    10. 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.
    11. Bertrand, Jean-Louis & Brusset, Xavier & Fortin, Maxime, 2015. "Assessing and hedging the cost of unseasonal weather: Case of the apparel sector," European Journal of Operational Research, Elsevier, vol. 244(1), pages 261-276.
    12. 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.
    13. Lannoo, Karel & Thomadakis, Apostolos, 2020. "Derivatives in Sustainable Finance," ECMI Papers 29791, Centre for European Policy Studies.
    14. 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.
    15. 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.
    16. Monika Wieczorek-Kosmala, 2020. "Weather Risk Management in Energy Sector: The Polish Case," Energies, MDPI, vol. 13(4), pages 1-21, February.
    17. Hong Shi & Zhihui Jiang, 2016. "The efficiency of composite weather index insurance in hedging rice yield risk: evidence from China," Agricultural Economics, International Association of Agricultural Economists, vol. 47(3), pages 319-328, May.
    18. Kleiman, Rachel M. & Characklis, Gregory W. & Kern, Jordan D., 2022. "Managing weather- and market price-related financial risks in algal biofuel production," Renewable Energy, Elsevier, vol. 200(C), pages 111-124.
    19. Kellner, Ulla & Musshoff, Oliver, 2011. "Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance," Agricultural Systems, Elsevier, vol. 104(8), pages 645-653, October.
    20. M. Ritter & O. Mußhoff & M. Odening, 2014. "Minimizing Geographical Basis Risk of Weather Derivatives Using A Multi-Site Rainfall Model," Computational Economics, Springer;Society for Computational Economics, vol. 44(1), pages 67-86, June.

    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:caa:jnlage:v:62:y:2016:i:8:id:188-2015-agricecon. 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: Ivo Andrle (email available below). General contact details of provider: https://www.cazv.cz/en/home/ .

    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.