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Int. J. Financial Stud. 2016, 4(3), 17; doi:10.3390/ijfs4030017

Spatially-Aggregated Temperature Derivatives: Agricultural Risk Management in China

1
Department of Mathematical Sciences, Xi’an Jiaotong-Liverpool University, Suzhou 215123, China
2
Department of Business and Social Sciences, Salzburg University of Applied Sciences, Puch/Salzburg 5412, Austria
*
Author to whom correspondence should be addressed.
Academic Editors: Chi Keung Lau and Satish Sharma
Received: 11 March 2016 / Revised: 22 August 2016 / Accepted: 24 August 2016 / Published: 5 September 2016
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Abstract

In this paper, a new form of weather derivative contract, namely the climatic zone-based growth degree-day (GDD) contract, is introduced. The objective is to increase the risk management efficiency in the agricultural sector of China and to reduce the model dimension of multi-regional temperature-based weather derivatives pricing. Since the proposed contract serves as a risk management tool for all of the cities in the same climatic zone, we compare the risk hedging power between the climatic zone-based and the city-based GDD contracts. As a result, we find that the differences between the two types of temperature-based weather contracts are maintained within a certain range. View Full-Text
Keywords: agriculture; growth degree-day; risk management; weather derivatives agriculture; growth degree-day; risk management; weather derivatives
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Zong, L.; Ender, M. Spatially-Aggregated Temperature Derivatives: Agricultural Risk Management in China. Int. J. Financial Stud. 2016, 4, 17.

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