Rainfall Insurance with Derivatives
20 Pages Posted: 7 Nov 2005
Date Written: October 2005
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: Suggested Citation