Abstract
Indonesia is a country with two seasons, dry season and wet season. Unstable rainfall significantly affects the production of cayenne pepper and can lead to crop failure. Agricultural insurance is insurance that plays a role in protecting farmers from lost crops. Rainfall and cayenne pepper production has a strong linear relationship. Assumptions in the Black-Scholes method such as the option used are European type options, do not provide dividends, there are no transaction costs, and the condition of the data after operation meets lognormal assumptions, supports this research in determining agricultural insurance premiums based on rainfall index using Balck-Scholes method. This research aims to determine the value of the precipitation index and the premiums to be paid using the Black-Scholes method. The Black-Scholes method is one of the methods used in determining the value of options in stock prices. The result of this study was that when rainfall is 109.10 mm, the premium must be paid by Rp 90,330.0475 and when rainfall is 153,7 mm, the premium must be paid by Rp 831.628,1900, which increased by 2,7504%. Higher rainfall results in higher premiums that must be paid.Keywords : Agricultural Insurance, Rainfall Index, Black-Scholes Method, Insurance Premium
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