Application of Black Scholes Method in Determining Agricultural Insurance Premium Based On Climate Index Using Historical Burn Analysis Method

Abstract

Climate index insurance is an insurance that provides reimbursement for losses due to decreased harvest rates or crop failures caused by weather. The use of Historical Burn Analysis (HBA) method in determining climate index based on rainfall resulted in a concept of the agricultural insurance payment in Pasuruan Regency. The application of The Black Scholes method in determining agricultural insurance premiums is obtained when rainfall more than 17 mm the premium is Rp 221,234. If the rainfall are 13 mm ≥ RR < 17 mm, the nominal premium paid by farmers to the insurance party is Rp 147,489. Respondents in the study were farmers who owned rice fields. Instrument quality testing (questionnaire) using validity test and reliability test using the help of SPSS statistical software. It can be concluded that the questionnaire is valid and reliable. Based on the results of the questionnaire, farmers considered that the nominal agricultural insurance premiums are in accordance with farmers' income.