The application of copulas approach in determining heat stress based index insurance premium for dairy cows in Damavand county

Designing and implementing temperature-humidity index insurance is a proper risk management tool that can lower animal breeder loss against heat stress and can lead to their income stability. Given this important issue in the present study, this insurance system has been designed for dairy cattle production in Damavand County. The required data were collected monthly from Damavand County’s agricultural and meteorological organizations in a time span ranging between 2012 and 2016. Given the flexibility of copula approach and its high accuracy in measuring dependency structure, this method was employed to account for joint distribution function and to measure expected loss. The results indicated that a strong dependency exists between dairy cow yield and temperature-humidity index, and this dependency can be better explicated through negative rotating Clayton index than any other copulas. The premium amount for each dairy cow has been calculated as 610650 Rials at 100 percent coverage level. Additionally, the expected loss resulted from heat stress at the 100 percent coverage level has been calculated as 42 kilograms within a month for each dairy cow. Considering the total number of dairy cows in the town, i.e. 2207 cows, the total loss resulted from heat stress has been calculated as 92694 kilograms and over 1.2 billion Rials within a month. With regard to the great loss resulted from heat stress and the importance of milk in the health of societies, it is recommended that the officials and policy-makers devote a particular attention to designing this insurance system throughout country.