publication . Other literature type . Preprint . 2005

Hedging Yield with Weather Derivatives: A Role for Options

Manfredo, Mark R.; Richards, Timothy J.; Manfredo, Mark R.; Richards, Timothy J.;
English
  • Published: 01 Jan 2005
  • Publisher: Unknown
Abstract
While there are few risk management alternatives available to specialty crop growers, weather derivatives provide an important advancement. As with the use of any derivatives contract, the behavior of the basis will ultimately determine the net-hedged outcome. However, when using weather derivatives to hedge yield risks for specialty crops, growers face a unique form of basis risk because weather (temperature) and yield are nonlinearly related. Using the forecast encompassing principle, this research shows that the nonlinear relationship between yield and weather creates a role for options in an optimal hedging program. The results suggest that weather derivativ...
Subjects
free text keywords: Weather Derivatives, Forecast Encompassing, Composite Hedges, Risk and Uncertainty, Q14, G13,, Risk and Uncertainty, Weather Derivatives, Forecast Encompassing, Composite Hedges
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publication . Other literature type . Preprint . 2005

Hedging Yield with Weather Derivatives: A Role for Options

Manfredo, Mark R.; Richards, Timothy J.; Manfredo, Mark R.; Richards, Timothy J.;