Applying Black Scholes method for crop insurance pricing

M. H. Filiapuspa, S. F. Sari, S. Mardiyati

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Uncertainty of weather can cause a lot of problems, especially to crop industry that depends on weather. Excessive or lack of rainfall can cause crop failure and hence the farmers will suffer from it. Crop failure can be considered as risk for farmers. Therefore, insurance is needed to manage the risk. There is similar characteristic between insurance and put options. Options value can be obtained from Black-Scholes method. The Black-Scholes method can be used for calculating insurance premiums. To apply the Black-Scholes method, rainfall and harvest area data are used. This paper will focus on crop insurance pricing based on rainfall and the risk used is drought, so the benefit will be paid if the rainfall is lower than the triggered rainfall. The amount of crop insurance premium will be greater if the triggered parameter increase.

Original languageEnglish
Title of host publicationProceedings of the 4th International Symposium on Current Progress in Mathematics and Sciences, ISCPMS 2018
EditorsTerry Mart, Djoko Triyono, Ivandini T. Anggraningrum
PublisherAmerican Institute of Physics Inc.
ISBN (Electronic)9780735419155
DOIs
Publication statusPublished - 4 Nov 2019
Event4th International Symposium on Current Progress in Mathematics and Sciences 2018, ISCPMS 2018 - Depok, Indonesia
Duration: 30 Oct 201831 Oct 2018

Publication series

NameAIP Conference Proceedings
Volume2168
ISSN (Print)0094-243X
ISSN (Electronic)1551-7616

Conference

Conference4th International Symposium on Current Progress in Mathematics and Sciences 2018, ISCPMS 2018
CountryIndonesia
CityDepok
Period30/10/1831/10/18

Keywords

  • Black-Scholes method
  • drought
  • premium
  • traditional crop insurance

Fingerprint Dive into the research topics of 'Applying Black Scholes method for crop insurance pricing'. Together they form a unique fingerprint.

  • Cite this

    Filiapuspa, M. H., Sari, S. F., & Mardiyati, S. (2019). Applying Black Scholes method for crop insurance pricing. In T. Mart, D. Triyono, & I. T. Anggraningrum (Eds.), Proceedings of the 4th International Symposium on Current Progress in Mathematics and Sciences, ISCPMS 2018 [020042] (AIP Conference Proceedings; Vol. 2168). American Institute of Physics Inc.. https://doi.org/10.1063/1.5132469