Costs and profit in chamomile production using weather put option
Abstract
Chamomile is very important medicinal and aromatic plant, and is used in many industries. The goal of this paper is to analyze the effect of risk elimination (effect of hedging) in production of chamomile in Serbia using weather put option based on the quantity of precipitation. The analysis is based on calculations of average costs of chamomile production per hectare, costs of agricultural mechanization, and determination of profit in chamomile production. To structure weather put option the key issue is calculation of option payoff and evaluation of risk price (fair premium) a buyer is willing to pay for risk transfer. Fair premium is determined by burn-rate method. Chamomile revenue is calculated with use of the weather derivatives and without them using stochastic simulation method. Calculations are performed by appropriate computer software (" Risk). Results have shown that use of weather put option is efficient only if production location is in the immediate vicinity of weather s...tation and if the correlation between quantity of precipitation and chamomile yield is high.
Keywords:
Chamomile / Weather put option / CostsSource:
Custos e Agronegocio, 2014, 10, 2, 285-295Publisher:
- Universidade Federal Rural de Pernambuco
Funding / projects:
- Sustainable agriculture and rural development in the function of accomplishing strategic objectives of the Republic of Serbia in the Danube region (RS-MESTD-Integrated and Interdisciplinary Research (IIR or III)-46006)
- The Improvement and Preservation of Biotechnology Procedures for Rational Energy Use and Improvement of Agricultural Production Quality (RS-MESTD-Technological Development (TD or TR)-31051)
Collections
Institution/Community
Poljoprivredni fakultetTY - JOUR AU - Marković, Todor AU - Ivanović, Sanjin AU - Pajić, Miloš PY - 2014 UR - http://aspace.agrif.bg.ac.rs/handle/123456789/3515 AB - Chamomile is very important medicinal and aromatic plant, and is used in many industries. The goal of this paper is to analyze the effect of risk elimination (effect of hedging) in production of chamomile in Serbia using weather put option based on the quantity of precipitation. The analysis is based on calculations of average costs of chamomile production per hectare, costs of agricultural mechanization, and determination of profit in chamomile production. To structure weather put option the key issue is calculation of option payoff and evaluation of risk price (fair premium) a buyer is willing to pay for risk transfer. Fair premium is determined by burn-rate method. Chamomile revenue is calculated with use of the weather derivatives and without them using stochastic simulation method. Calculations are performed by appropriate computer software (" Risk). Results have shown that use of weather put option is efficient only if production location is in the immediate vicinity of weather station and if the correlation between quantity of precipitation and chamomile yield is high. PB - Universidade Federal Rural de Pernambuco T2 - Custos e Agronegocio T1 - Costs and profit in chamomile production using weather put option EP - 295 IS - 2 SP - 285 VL - 10 UR - https://hdl.handle.net/21.15107/rcub_agrospace_3515 ER -
@article{ author = "Marković, Todor and Ivanović, Sanjin and Pajić, Miloš", year = "2014", abstract = "Chamomile is very important medicinal and aromatic plant, and is used in many industries. The goal of this paper is to analyze the effect of risk elimination (effect of hedging) in production of chamomile in Serbia using weather put option based on the quantity of precipitation. The analysis is based on calculations of average costs of chamomile production per hectare, costs of agricultural mechanization, and determination of profit in chamomile production. To structure weather put option the key issue is calculation of option payoff and evaluation of risk price (fair premium) a buyer is willing to pay for risk transfer. Fair premium is determined by burn-rate method. Chamomile revenue is calculated with use of the weather derivatives and without them using stochastic simulation method. Calculations are performed by appropriate computer software (" Risk). Results have shown that use of weather put option is efficient only if production location is in the immediate vicinity of weather station and if the correlation between quantity of precipitation and chamomile yield is high.", publisher = "Universidade Federal Rural de Pernambuco", journal = "Custos e Agronegocio", title = "Costs and profit in chamomile production using weather put option", pages = "295-285", number = "2", volume = "10", url = "https://hdl.handle.net/21.15107/rcub_agrospace_3515" }
Marković, T., Ivanović, S.,& Pajić, M.. (2014). Costs and profit in chamomile production using weather put option. in Custos e Agronegocio Universidade Federal Rural de Pernambuco., 10(2), 285-295. https://hdl.handle.net/21.15107/rcub_agrospace_3515
Marković T, Ivanović S, Pajić M. Costs and profit in chamomile production using weather put option. in Custos e Agronegocio. 2014;10(2):285-295. https://hdl.handle.net/21.15107/rcub_agrospace_3515 .
Marković, Todor, Ivanović, Sanjin, Pajić, Miloš, "Costs and profit in chamomile production using weather put option" in Custos e Agronegocio, 10, no. 2 (2014):285-295, https://hdl.handle.net/21.15107/rcub_agrospace_3515 .