Efficiency of financial weather contracts in Czech agriculture

摘要

Agriculture is one of the most weather sensitive sectors. The paper aims to assess the efficiency of agricultural weather derivatives to reduce revenue risk in agriculture taking into consideration the growing conditions in the Czech Republic. The problem of risk management scheme in the Czech agriculture is that systemic weather risks are not covered by insurance (drought). In these cases, farmers have to rely either on their own financial reserves or ad hoc state assistance. Various combinations of weather variables, crops, regions and weather stations have been examined to design index-based weather contracts for most important crops produced in the Czech Republic. The main part of the paper is devoted to methods of design and valuation of weather derivatives at the regional level (burn analysis, parametric bootstrap). Regarding the efficiency of weather derivatives, it is possible to conclude that spatial (geographical) and production basis risk significantly reduce the efficiency of weather derivatives in agricultural practice.