BOSTON, July 1, 2010 — The AIR Worldwide (AIR) agriculture risk modeling team finished first in the FACTSim Futures and Options Trading Competition for the fifth time in the past six years. The team based its trades on information provided by AIR’s advanced crop yield model, which is a key component of the AIR Multiple Peril Crop Insurance (MPCI) Model for the United States.
“The markets have been extremely volatile, which created opportunities for notable gains and losses,” commented Dr. John VanSickle, FACTSim director. “The AIR team was selected as the winner based on their ability to maintain consistency despite the fluctuations in the market. The team made a very strong showing in the last month of the competition and was the only team to have five traders showing a profit at the end of the second-half trading session.”
To accurately isolate and quantify the effects of weather on crop yield, it is necessary to remove the long-term impact of technological improvements. AIR developed the Agricultural Weather Index (AWI) to de-trend the time series of historical yields to create more accurate yield distributions. This approach explicitly accounts for extreme weather events that may otherwise be very difficult to distinguish from the technological trend.
“Our continued success in this competition can be attributed to the use of AIR’s MPCI Model,” said Jack Seaquist, assistant vice president at AIR Worldwide. “Once again AIR’s in-season Agricultural Weather Index provided the insight to anticipate final yield levels well in advance of the harvest.”
The AIR MPCI Model captures the full range of potential yield losses that could occur in a growing season, and the model is updated ahead of each crop insurance and reinsurance renewal season. This same technology is also used by crop insurers and commodity traders during the growing season to bring an entirely new level of sophistication to risk analysis and decision making.
“Because weather is the number one peril affecting crop insurance portfolios in the United States, crop insurance and reinsurance underwriters spend a considerable amount of time and resources trying to assess a portfolio’s potential for loss from adverse weather conditions,” said Dr. Oscar Vergara, agricultural risk modeling consultant at AIR Worldwide. “AIR’s Multiple Peril Crop Insurance Model accurately quantifies the effects of weather on crop production and uses crop and county-specific relationships between weather and yield to capture the full range of potential yield losses that could occur in a growing season.”
Thirteen teams composed of at least four traders each participated in the competition, which began on August 1, 2009. Participants had until May 28, 2010, to make the most profit based on their overall trades.
About AIR Worldwide
AIR Worldwide (AIR) is the scientific leader and most respected provider of risk modeling software and consulting services. AIR founded the catastrophe modeling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 50 countries. More than 400 insurance, reinsurance, financial, corporate, and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securities, detailed site-specific wind and seismic engineering analyses, agricultural risk management, and property replacement-cost valuation. AIR is a member of the ISO family of companies and is headquartered in Boston with additional offices in North America, Europe, and Asia. For more information, please visit www.air-worldwide.com.