| The importance of weather as a production factor in agriculture is well established long time and a significant portion of yield fluctuations is caused by weather risks. Traditionally, farmers have tried to hedge against unfavorable weather using insurance, such as crop insurance. In recent years a new class of instruments, so called weather derivatives, have emerged. They allows to reduce weather based risks as well. Weather derivatives are financial market products such as forwards, futures, options and swaps, that have a weather component such as temperature or rainfall. Although weather derivatives have some advantages compared to traditional insurance, their trading volume is still rather small. One reason (among others) for why potential users... |
