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Abstract

Extreme meteorological events have increased over the last decade and it is widely accepted that it is due to climate change. Some of these extremes like drought or frost episodes largely affect agricultural outputs that could face a serious decline. Therefore, additional efforts on technology and adaptation become crucial to reduce the effect of climate change on agricultural production. Protection against adverse weather extremes is a significant component of risk management and large protection decisions need dynamic treatment, such as the vineyards or citrus protection against frost (Murphy et al., 1985), the water management for cereals irrigation in drought shortage contexts, the “options and futures” exchange markets decisions for major crops in USA, and many other risk management problems. The goal of this paper is to obtain the analytical expressions for the optimal actions and minimal expected expenses associated with a dynamic cost-loss model with finite horizon. The optimal policy expressions for this type of situations can help in the management of climate risk in agriculture in a more general approach than numerical solutions.

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