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Abstract

The article discusses weather derivatives as a potentially effective risk management tool for agribusinesses looking to mitigate the risk of their revenue against changes in weather conditions. The design and evaluation of weather derivatives is an interdisciplinary approach that includes agro-meteorology, statistics, mathematical modeling, and financial and risk management. This document provides an overview of data sources first, and then methods for designing and evaluating meteorological derivatives at the regional level. The accompanying case study focuses on cereal cultivation in the Czech Republic. However, its generalization is simple. The analysis of major cereal growth stages was based on regression analysis using weather indices as the independent variable and crop yield as the dependent variable. Along with the bootstrap tool, burnout analysis is considered a useful tool for estimating the uncertainty of payouts, option prices, and income probability distribution statistics. The outcomes show that the space base and production risks reduce the effectiveness of weather derivatives. Finally, the potential for expansion of weather derivatives remains in low-income countries in Africa and Asia with systemic weather risk.