Pricing Weather Insurance with a Random Strike Price: The Ontario Ice-Wine Harvest

Posted: 20 Jul 2006

See all articles by Calum G. Turvey

Calum G. Turvey

Cornell University - School of Applied Economics and Management

Alfons Weersink

University of Guelph - Department of Agricultural Economics and Business

Szu-Hsuan Celia Chiang

University of Lethbridge - Department of Economics

Abstract

Weather insurance within the agricultural sector has been limited by the difficulty in defining the appropriate weather event and in pricing the product. We develop a new pricing method for weather insurance under situations where returns depend not only on the occurrence of the weather event, but also its timing. The method is used to price weather insurance for ice wine. Because the harvest quantity of grapes for ice wine degrades over time, the strike value on the weather event measured as harvestable hours is random. We develop a Monte Carlo method to estimate the premium.

Suggested Citation

Turvey, Calum G. and Weersink, Alfons and Celia Chiang, Szu-Hsuan, Pricing Weather Insurance with a Random Strike Price: The Ontario Ice-Wine Harvest. American Journal of Agricultural Economics, Vol. 88, No. 3, pp. 696-709, August 2006, Available at SSRN: https://ssrn.com/abstract=918557 or http://dx.doi.org/10.1111/j.1467-8276.2006.00889.x

Calum G. Turvey (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Alfons Weersink

University of Guelph - Department of Agricultural Economics and Business ( email )

Guelph, N1G 2W1, Ontario
Canada
519 824-4120, Ext. 2766 (Phone)

Szu-Hsuan Celia Chiang

University of Lethbridge - Department of Economics

4401 University Drive
T1K 3M4 Lethbridge, A.B.
Canada

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