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Weather‐based instruments in the context of whole‐farm risk management

Weather‐based instruments in the context of whole‐farm risk management Recent and presumable future developments tend to increase the risks associated with farming activities. These include climate risks, which have always played an important role in farming. Weather‐based instruments can be valuable tools to reduce the risk associated with unfavourable climate events. However, a number of factors could limit the hedging effectiveness of these tools. These factors include basis risk, the impacts of remaining price uncertainty, and diversification effects. This paper addresses the influence of each of these factors. In the final section, an integrated approach for a comprehensive assessment of weather derivatives and other hedging instruments is proposed that is based on the concept of portfolio optimization. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Weather‐based instruments in the context of whole‐farm risk management

Agricultural Finance Review , Volume 68 (1): 15 – May 5, 2008

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0002-1466
DOI
10.1108/00214660880001222
Publisher site
See Article on Publisher Site

Abstract

Recent and presumable future developments tend to increase the risks associated with farming activities. These include climate risks, which have always played an important role in farming. Weather‐based instruments can be valuable tools to reduce the risk associated with unfavourable climate events. However, a number of factors could limit the hedging effectiveness of these tools. These factors include basis risk, the impacts of remaining price uncertainty, and diversification effects. This paper addresses the influence of each of these factors. In the final section, an integrated approach for a comprehensive assessment of weather derivatives and other hedging instruments is proposed that is based on the concept of portfolio optimization.

Journal

Agricultural Finance ReviewEmerald Publishing

Published: May 5, 2008

Keywords: Downside risk; Portfolio optimization; Risk management; Risk‐value models; Weather derivatives

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