@article{Berg:97213,
      recid = {97213},
      author = {Berg, Ernst and Schmitz, Bernhard and Starp, Michael and  Trenkel, Hermann},
      title = {Wetterderivate: Ein Instrument im Risikomanagement für die  Landwirtschaft?},
      journal = {German Journal of Agricultural Economics},
      address = {2005},
      number = {670-2016-45625},
      pages = {13},
      year = {2005},
      abstract = {The risks associated with farming activities are likely to  increase in the future. It, therefore, appears worthwhile  to analyse new risk management instruments. This paper  investigates weather derivatives for which a market has  already emerged in the USA. Contrary to traditional  financial derivatives, their payoff is determined by future  weather events, such as temperature or precipitation. Thus,  they hedge risks which result from climate. Since they  address production risks they are complementary to  instruments that hedge price risks, such as future markets.  The objective of the paper is to evaluate the economic  impacts of weather derivatives and to assess their  potential as farm level instruments of risk management.  After outlining the main characteristics and the  functioning of weather derivatives and their emergence,  emphasis is placed on model calculations to quantify farm  level impacts. The potato farm is used as a case study.  Empirical data on yields and weather variables are taken  from an experiment station of the Chamber of Agriculture at  Hanover, Germany. After studying the relationship between  yields and weather variables, the findings are used to  design an option based on a precipitation index. Stochastic  simulation is then used to assess the effects on the  probability distribution of revenues. The results show that  weather derivatives can be useful instruments of risk  management in agriculture. Since there is still a lack of  knowledge with respect to some of their economic impacts,  further research is needed. This refers to the choice of  suitable commodities and weather indexes, the contractual  design and methodological aspects of pricing and of  integrating weather derivatives into the risk management of  farms. Last but not least, the question has to be answered,  as to which partners would be willing to accept the risk  that farmers intend to reduce by means of weather  derivatives.},
      url = {http://ageconsearch.umn.edu/record/97213},
      doi = {https://doi.org/10.22004/ag.econ.97213},
}