2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method
| Format: | General Document |
|---|
| _version_ | 1860798362299662336 |
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| building | INTELEK Repository |
| collection | Online Access |
| collectionurl | https://intelek.unisza.edu.my/intelek/pages/search.php?search=!collection1147208 |
| copyright | Copyright©PWB2026 |
| country | Malaysia |
| date | 2025-09-02 |
| format | General Document |
| id | 17465 |
| institution | UniSZA |
| originalfilename | 17465_d7acd0c7e9044f6.pdf |
| person | Agung Prabowo |
| recordtype | oai_dc |
| resourceurl | https://intelek.unisza.edu.my/intelek/pages/view.php?ref=17465 |
| sourcemedia | Server storage Scanned document |
| spelling | 17465 https://intelek.unisza.edu.my/intelek/pages/view.php?ref=17465 https://intelek.unisza.edu.my/intelek/pages/search.php?search=!collection1147208 General Document Malaysia Library Staff (Top Management) Library Staff (Management) Library Staff (Support) Terengganu Faculty of Informatics & Computing English application/pdf 1.7 Public Access Server storage Scanned document Universiti Sultan Zainal Abidin Universiti Sultan Zainal Abidin Dissertations, Academic Microsoft® Word LTSC 2025-09-02 Copyright©PWB2026 Thesis Agung Prabowo Agricultural Insurance Insurance Premium Calculation Black-Scholes Method Improved Black-Scholes Model Cash-or-Nothing Method Rainfall Risk Paddy Production Crop Failure Risk Climate Change Impact Risk Modeling Agricultural Insurance Crop Insurance Insurance Premiums Mathematical Models Stochastic Processes 2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method Paddy farming is faced with a fairly high risk of uncertainty, including crop failure caused by climate change. Farmers’ losses due to crop failure can be protected by an agricultural insurance program, in which farmers must pay a premium to become participants. A fair premium needs to be formulated using a mathematical method. The determination of premiums should account for the relationship between rainfall distribution and paddy production while providing reasonable and progressive premium values. Some methods used to determine premiums include the normal distribution approach, the aggregate claim approach, and the Black–Scholes method. The purpose of this study is to formulate an improved Black–Scholes method for determining a reasonable premium based on the functional relationship between paddy production and rainfall. First, a study was carried out on the strengths and weaknesses of the normal distribution approach, the Compound Poisson distribution approach, and the Black–Scholes method. The strength of the Black–Scholes method is its consideration of changes in rainfall, but its disadvantage is that the amount of compensation cannot be determined, and the premium size is close to the compensation, namely IDR 6,000,000. Second, the Cash-or-Nothing method was developed as an improvement to the Black–Scholes method. In this method, the correlation between paddy production and rainfall can be determined, and the amount of premium and compensation can be calculated progressively. The advantage of this method involves selecting percentiles so that the premium is more reasonable, and compensation can be determined using the Historical Burn Analysis method. This study used two factors, namely rainfall and paddy production. Meanwhile, aggregate claims are defined as losses that take into account the frequency of occurrences as well as the magnitude of the losses. The two factors are regressed to determine the amount of the premium, which is calculated using the Cash-or-Nothing method, resulting in a different premium determination model. Data on paddy production and rainfall in Banjarnegara Regency from 2014 to 2018 were used as a case study. From the analysis of data on paddy production and rainfall, a correlation value of 0.98 was obtained, indicating that the insurance program could be implemented. Based on the results of calculations using the Black–Scholes method, a premium of IDR 3,661,427 was obtained. The use of the Cash-or-Nothing method depends on the percentile chosen. For the 5% percentile, calculations using the Cash-or-Nothing method show that the amount of premium to be paid is IDR 198,493 for 16.70 mm rainfall, while for the 10% percentile with 18.10 mm rainfall, the premium is IDR 305,919.58. Calculation of compensation using the Historical Burn Analysis method showed that, for each selected percentile, compensation decreases as rainfall increases. Based on the results of the analysis on paddy insurance, premium calculation using the Cash-or-Nothing method is more reasonable than the Black–Scholes method. Furthermore, if rainfall increases, the premium payment will be higher. The same conclusion applies to other agricultural commodities such as corn and shallots. The results of this study can be used to improve the process of determining the amount of insurance premiums for paddy and other agricultural products, as well as the amount of compensation. uuid:4F546DA4-0291-4D65-A2DD-4E69C8C46515 17465_d7acd0c7e9044f6.pdf 464 |
| spellingShingle | 2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method |
| state | Terengganu |
| subject | Dissertations, Academic Agricultural Insurance Crop Insurance Insurance Premiums Mathematical Models Stochastic Processes |
| summary | Paddy farming is faced with a fairly high risk of uncertainty, including crop failure caused by climate change. Farmers’ losses due to crop failure can be protected by an agricultural insurance program, in which farmers must pay a premium to become participants. A fair premium needs to be formulated using a mathematical method. The determination of premiums should account for the relationship between rainfall distribution and paddy production while providing reasonable and progressive premium values. Some methods used to determine premiums include the normal distribution approach, the aggregate claim approach, and the Black–Scholes method. The purpose of this study is to formulate an improved Black–Scholes method for determining a reasonable premium based on the functional relationship between paddy production and rainfall. First, a study was carried out on the strengths and weaknesses of the normal distribution approach, the Compound Poisson distribution approach, and the Black–Scholes method. The strength of the Black–Scholes method is its consideration of changes in rainfall, but its disadvantage is that the amount of compensation cannot be determined, and the premium size is close to the compensation, namely IDR 6,000,000. Second, the Cash-or-Nothing method was developed as an improvement to the Black–Scholes method. In this method, the correlation between paddy production and rainfall can be determined, and the amount of premium and compensation can be calculated progressively. The advantage of this method involves selecting percentiles so that the premium is more reasonable, and compensation can be determined using the Historical Burn Analysis method. This study used two factors, namely rainfall and paddy production. Meanwhile, aggregate claims are defined as losses that take into account the frequency of occurrences as well as the magnitude of the losses. The two factors are regressed to determine the amount of the premium, which is calculated using the Cash-or-Nothing method, resulting in a different premium determination model. Data on paddy production and rainfall in Banjarnegara Regency from 2014 to 2018 were used as a case study. From the analysis of data on paddy production and rainfall, a correlation value of 0.98 was obtained, indicating that the insurance program could be implemented. Based on the results of calculations using the Black–Scholes method, a premium of IDR 3,661,427 was obtained. The use of the Cash-or-Nothing method depends on the percentile chosen. For the 5% percentile, calculations using the Cash-or-Nothing method show that the amount of premium to be paid is IDR 198,493 for 16.70 mm rainfall, while for the 10% percentile with 18.10 mm rainfall, the premium is IDR 305,919.58. Calculation of compensation using the Historical Burn Analysis method showed that, for each selected percentile, compensation decreases as rainfall increases. Based on the results of the analysis on paddy insurance, premium calculation using the Cash-or-Nothing method is more reasonable than the Black–Scholes method. Furthermore, if rainfall increases, the premium payment will be higher. The same conclusion applies to other agricultural commodities such as corn and shallots. The results of this study can be used to improve the process of determining the amount of insurance premiums for paddy and other agricultural products, as well as the amount of compensation. |
| title | 2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method |
| title_full | 2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method |
| title_fullStr | 2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method |
| title_full_unstemmed | 2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method |
| title_short | 2026_The Agricultural Insurance Premium Using Improved Black-Scholes Method |
| title_sort | 2026_the agricultural insurance premium using improved black-scholes method |