Modeling frost losses: application to pricing frost insurance

Hirbod Assa, Meng Wang, Athanasios A. Pantelous

Research output: Contribution to journalArticleResearchpeer-review

1 Citation (Scopus)

Abstract

The main objective of this article is to model the losses caused by frost events and use it to price frost insurance. Since the data on frost events are either unavailable or rarely available, we have chosen to obtain a model for frost losses based on temperature by using some fundamental agricultural engineering findings on frost damage. The main challenges in modeling frost loss variables are, first, the nonlinearity of the frost losses with respect to the temperature and, second, the fruit resistance to the first few hours of low temperature. We address both issues when introducing our frost loss variable. Then after finding the loss model, we use it to price frost insurance for a general family of insurance contracts that do not generate any risk of moral hazard. In particular, we will find the premiums of stop-loss policies for losses to citrus fruits using Value at Risk, Conditional Value at Risk, and Wang's premium based on temperature data from San Joaquin Drainage in California.

Original languageEnglish
Pages (from-to)137-159
Number of pages23
JournalNorth American Actuarial Journal
Volume22
Issue number1
DOIs
Publication statusPublished - 14 Mar 2018
Externally publishedYes

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