A Stochastic Weather Model for Drought Derivatives in Arid Regions: A Case Study in Qatar

In this paper, we propose a stochastic weather model consisting of temperature, humidity, and precipitation, which is used to calculate reconnaissance drought index (RDI) in Qatar. The temperature humidity models include differential equations utilize an adjusted Ornstein–Uhlenbeck (O–U) process. For the precipitation model, first-order Markov chain differentiate between wet dry days amount on determined by probability distribution. Five different distributions were statistically tested obtain appropriate amount. evapotranspiration RDI calculation incorporates crop coefficient values, depends growth stages crops, provides crop-specific more realistic representation conditions. formulations investigated order most accurate values. calculated was assess intensity Doha, Qatar, could be for pricing financial derivatives, form derivative. These derivatives agricultural producers hedge against economic effects droughts.