Agroeconomia Croatica, Vol. 3 No. 1, 2013.
Preliminary communication
Risk reduction in maize production using weather put option
Todor Marković
orcid.org/0000-0002-2188-9713
; Faculty of Agriculture, University of Novi Sad, Trg Dositeja Obradovića 8, Novi Sad, Serbia
Aleksandra Martinovska Stojčeska
; Faculty of Agricultural Sciences, University “Sv. Kiril i Metodij” of Skopje, Bulevar Aleksandar Makedonski bb, Skopje, Macedonia
Sanjin Ivanović
; Faculty of Agriculture, University of Belgrade, Nemanjina 6, Belgrade, Serbia
Abstract
The aim of this paper is to provide the basic theoretical assumptions about the weather derivatives and to quantify the risk reducing effect of rainfall put-options by applying a stochastic simulation. For this simulation we analyzed the yield data obtained from the maize producing farm located in the central part of Srem (Serbia). A nearby weather station contributed the meteorological data. To attain this goal, we analyze and compare three cases: Revenue without put-option, revenue with put-option, with basis risk and revenue with put-option, without basis risk. In comparison with having no rainfall put-option, the farmer can hedge 10.000 RSD ha-1 with the put-option, considering the basis risk, and even 20.000 RSD ha-1 when not considering basis risk. Consequently the hedging efficiency of the rainfall put-option is substantial in our example.
Keywords
basis risk of production; maize; geographical basis risk; revenue; weather put option
Hrčak ID:
109557
URI
Publication date:
2.9.2013.
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