SYSTEMIC MONSOON RISK AND RAINFALL INDEX FUTURES: STRATEGIES FOR RISK ABSORPTION
Authors: Kumar Bhat Kiran
DOI: 10.5281/zenodo.17423903
Published: October 2025
Abstract
<p><em>Purpose: The purpose of this paper is to analyse the application and uniqueness of rainfall index-based futures for mitigating rainfall risk which impacts various segments of the economy including agriculture, banking & insurance, agro-processing, and power generation. </em></p> <p><em>Design/Methodology/Approach: Research studies have shown that traditional insurance markets are unable to address the problem of rainfall risk adequately. There is need for a versatile financial tool to effectively absorb the rainfall risk. </em></p> <p><em>Findings: The structure of Rainfall Futures Contract is presented using standard metrics as Excess Rainfall Days (ERDs) and Deficit Rainfall Days (DRDs). </em></p> <p><em>Practical implications: The importance of basis risk in evaluating the feasibility and effectiveness of rainfall index-based futures is examined. </em></p> <p><em>Originality value: Rainfall index-based futures represent an innovative financial product introduced by Chicago Mercantile Exchange. </em></p>
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