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Rainfall Insurance with Derivatives

20 Pages Posted: 7 Nov 2005  

Tapen Sinha

Instituto Tecnológico Autónomo de México (ITAM) - Division of Actuarial Science, Statistics and Mathematics; Nottingham University Business School

Edgard Baqueiro

Instituto Tecnológico Autónomo de México (ITAM) - Division of Actuarial Science, Statistics and Mathematics

Date Written: October 2005

Abstract

We discuss rainfall insurance using financial derivatives. Usual modeling is done for temperature related products. We gathered rainfall data in Mexico City over a period of five decades. We show that the time series data is stationary and normally distributed. Thus, we apply the closed form solution proposed by Stephen Jewson in 2003 to value swaps, calls and puts (with and without limits). The model can be used for practical purpose of pricing rainfall derivatives.

Keywords: Rainfall insurance, derivatives, swaps, calls, puts, valuation, burn analysis, index modeling

JEL Classification: G00, G13, G22

Suggested Citation

Sinha, Tapen and Baqueiro, Edgard, Rainfall Insurance with Derivatives (October 2005). Available at SSRN: https://ssrn.com/abstract=839208 or http://dx.doi.org/10.2139/ssrn.839208

Tapen Sinha (Contact Author)

Instituto Tecnológico Autónomo de México (ITAM) - Division of Actuarial Science, Statistics and Mathematics ( email )

Rio Hondo #1 Col. Tizapan San Angel
C.P. 01000 Del. Alvaro Obregon
52 55 5628 4088 (Phone)
52 55 5628 4086 (Fax)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

Edgard Baqueiro

Instituto Tecnológico Autónomo de México (ITAM) - Division of Actuarial Science, Statistics and Mathematics ( email )

Rio Hondo No. 1, Tizapan, San Angel
Mexico, DF 01000
Mexico

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