A Methodical Approach to Design and Valuation of Weather Derivatives in Agriculture

Table 5

The structure of specific-event contracts and the efficiency assessment.

	Wheat	Barley
Region	Jihomoravský	Jihomoravský
Index	Air temperature	Air temperature
Critical month for crop yield formation (weights)	April (0.074)	April (0.194)
	May (0.213)	May (0.149)
	June (0.713)	June (0.657)
Strike 1	17.05°C	16.18°C
Strike 2	15.80°C	15.07°C
Type of regression function	Linear	Linear
𝑅^2	0.481	0.473
Type of option	Call	Call
Fixed price (CZK/t)	4,600	3,700
Tick	1,834 CZK/1°C	1,341 CZK/1°C
Strike 1
Without basis risk
Reduction of sales variability	−11.7%	−13.8%
Reduction of average sales	−0.45%	−0.47%
With basis risk
Reduction of sales variability	−5.5%	−5.7%
Reduction of average sales	−0.41%	−0.49%
Contract price (CZK per 1 ha)	240	190
Strike 2
Without basis risk
Reduction of sales variability	−39.6%	−40.0%
Reduction of average sales	−1.10%	−0.88%
With basis risk
Reduction of sales variability	−16.0%	−14.3%
Reduction of average sales	−1.00%	−1.07%
Contract price (CZK per 1 ha)	1,000	690

Source: authors.