Spatially-aggregated temperature derivatives: Agricultural risk management in china

Lu Zong*, Manuela Ender

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

In this paper, a new form of weather derivative contract, namely the climatic zone-based growth degree-day (GDD) contract, is introduced. The objective is to increase the risk management efficiency in the agricultural sector of China and to reduce the model dimension of multi-regional temperature-based weather derivatives pricing. Since the proposed contract serves as a risk management tool for all of the cities in the same climatic zone, we compare the risk hedging power between the climatic zone-based and the city-based GDD contracts. As a result, we find that the differences between the two types of temperature-based weather contracts are maintained within a certain range.

Original languageEnglish
Article number17
JournalInternational Journal of Financial Studies
Volume4
Issue number3
DOIs
Publication statusPublished - Sept 2016

Keywords

  • Agriculture
  • Growth degree-day
  • Risk management
  • Weather derivatives

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