Weather-Based Crop Insurance (WBCI) Premium for Rainfed Wheat in Miyaneh County: D-Vine Copula Approach Application

Risk is an unavoidable but manageable element in agriculture. Agricultural insurance is an effective scheme in risk management. Nevertheless, traditional insurance schemes have problems, such as high transaction costs, challenge of asymmetric information, i.e. adverse selection and moral hazard. Therefore, in this research paper weather-based crop insurance (WBCI) is presented for rainfed wheat in Miyaneh county which is an efficient tool in risk management, and does not have current insurance’s problem. In this regards, we collected the data of yield of "Sardari rainfed wheat variety" and "weather variables" during 1987-2013, respectively, from "Iran Agricultural Organization" and "Iran Meteorological Organization". In recent years, the "Vine copula functions" have been very successful in measuring of dependence structure and expression of joint distribution functions in different fields. Consequently, in this study, dependent structure between weather indices and product performance with utilization of Vine copula functions was measured, and in the end, premium amounts and indemnity function were calculated. The D-Vine model was used to compute insurance premium for rainfed wheat and description of joint distribution. We calculated insurance premium in four levels of coverage (50, 80, 90 and 100 percent) that its amount in 80 percent coverage level is 578827 Rials. The computing premium in WBCI is less than current insurance premium, which is reasonable. Moreover, the result of indemnity function indicates that "relativity humidity variable" has most dependence with Miyaneh rainfed wheat yield. Its "trigger value" and "stop-loss", respectively, are 51.83 and 23.07 percent.