Research On Weather Derivatives Shifting Agricultural Meteorological Risks

Agriculture has always been the foundation of the national economy. Andagricultural development relates to the national economy and the people’slivelihood. Compared with other industries, agriculture is greatly affected bymeteorological conditions. Besides earthquakes, floods, drought and hail, thechange of temperature and rainfall has made strong uncertainties to agriculturalgains. Traditional risk management strategy can not avoid risk posed by thechange of normal weather effectively. The emergence and design of weatherderivatives can avoid meteorological risks.In fact, the structure of weather derivatives is the same with a financialderivative. Weather derivatives are calculated in the basic value of thetemperature, rainfall, humidity,wind speed and other meteorologicalfactors.Weather derivatives were originally emerged in the U. S. Energy Sector inthe mid-1990s. Because the weather derivatives can avoid the meteorologicalrisks appeared in some industries.These industries are sensitive to meteorologicalrisks. Weather derivatives are developing rapidly throughout the world as theyemerged.Firstly, the author defines the concept of agricultural meteorologicalrisks.And the author introduces some shortcomings existed in the traditionalagricultural meteorological risk-averse mechanism. The risk-averse mechanismincludes agricultural insurance, agricultural technology and the weather ofsecurities. Secondly, the author designs the temperature index futures and rainfallindex options on the basis of many literature at home and abroad about weatherderivatives. The temperature index futures and rainfall index options are mostwidely used in the world. Once again, this paper selects the average rainfall datafrom the year1992to2010in Harbin city,uses ARMA model to simulate the stochastic process of rainfall, estimate the parameters of the model,get theparameters distribution of the rainfall. Then taking a corn grower in Harbin forexample, this paper tests the application of the rainfall index options contracts.This paper pays attention to the combination of theoretical research andpractical research and provide a reference to development of weather derivativesmarket in China.