To read the full version of this content please select one of the options below:

The pricing, structure, and function of weather‐linked bonds, mortgages, and operating credit

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 5 May 2008

Abstract

This paper outlines approaches to valuating weather‐linked bonds, mortgages, and operating lines of credit. Using historical data from weather stations in Adrmore, Oklahoma, and Ithaca, New York, indemnities and insurance premiums are computed for specific‐event rainfall insurance. The main contribution of the paper is the development of new and accurate formulae for determining the coupon rates on weather‐linked bonds and the interest rates on weather‐linked mortgages and lines of credit. The empirical aspects of the paper indicate that linking weather risk to debt may be very costly if the risks are common, but the risk premiums on rare or low‐frequency weather risks can be very manageable.

Keywords

Citation

Turvey, C.G. (2008), "The pricing, structure, and function of weather‐linked bonds, mortgages, and operating credit", Agricultural Finance Review, Vol. 68 No. 1, pp. 135-150. https://doi.org/10.1108/00214660880001223

Publisher

:

Emerald Group Publishing Limited

Copyright © 2008, Emerald Group Publishing Limited