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Pricing weather derivatives for the chardonnay cultivar in Wellington using a credit default SWAP methodology

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Holemans, Nadine
Styger, Paul
Van Vuuren, Gary Wayne

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Unisa/Taylor & Francis

Abstract

Most South African farmers employ standard insurance to protect crops from natural disasters such as hail or strong winds, but no insurance contracts exist to compensate for rain damage (although floods are covered), or for temperature damage to relevant crops. Weather derivatives do exist, but are mostly available in foreign markets and used chiefly by energy companies. Some South African over-the-counter weather derivatives are available, but trading is rare. This paper establishes a pricing equation for weather derivatives specifically for use in the South African market. The methodology employed borrows heavily from the techniques used to price credit default swaps.

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Official publication of the Agricultural Economics Association of South Africa (ARASA)

Citation

Holemans, N. et al. 2011. Pricing weather derivatives for the chardonnay cultivar in Wellington using a credit default SWAP methodology. Agrekon, 50(4):25-44. [http://www.tandfonline.com/doi/pdf/10.1080/03031853.2011.617903]

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