Abstract:
The crop insurance in Indonesia (AUTP) is much focused on the area impacted by flood,
drought, and pest attack. The complication of the procedure to claim the loss must follow
several conditions. The different approaches in the insurance sector, using weather index can
be taken into consideration to produce a variety of insurance products. This insurance
product used the American put option with the primary asset is the rainfall and the
cumulative rainfall to exercise the claim, considering the optimal execution limit. The
homotopic analysis is used to determine the valuation of the American put option, which also
becomes the insurance premium. The case study is focused on areas experiencing a drought
so that insurance claims can be exercise when the rainfall index value is below a
predetermined limit. Considering the normality of the rainfall data, the calculation of
insurance premium was done for the first growing season. The insurance premium is varies
based on the optimal execution limit, while the calculation of profit is based on the optimum
limit exercise and the minimum rainfall for the growing season, and its different depended on
insurance claim acceptance limits.
