It should not be confused with strike and limit thresholds.
In this case, I am emphasizing the basis of the index, such as:
-Cumulative, accumulated, deficit and excess rainfall values.
-Average, lowest and highest temperature values.
For example, I have historical rainfall, temperature and streamflow data consisting of about 30 years, so how can I decide the value of index based on the above values such as cumulative, average, lowest and highest values?
Dear Mukhtar Abdi . Your work will be of great interest to me. Although I may not be able to contribute towards answering your question, we are working to develop suitable agri insurance products for small farmers in India, so will keenly follow your work.
While idiosyncratic adverse weather impacts can be man-aged through informal measures, systemic weather events require formal risk management approaches such as insurances.Traditional indemnity based insurances however, are plagued by asymmetric information problems1and high transaction costs. Index-based insurance products overcome these challenges by conditioning the payout not on actual yield losses but on the realization of an independent and transparent index. For weather index-based insurances, the index is designed to adequately reflect weather conditions, which decisively influence crop yields or better crop yield reductions in a specific region. However, the discrepancy between index and crop yield loss leads to a residual risk borne by the insured farmerthat is referred to as basis risk.
You can use Standard Precipitation Index, RDI, Streamflow index- All these indices will give you an idea about how these climatic and hydrologic variables influences the productivity. Both extremes such as floods and droughts can be captured, and can be linked to weather based insurance
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