Abstract
In this paper, a Markov Chain Analogue Year model is used to describe the occurrence process of daily rainfall and the amount of daily rainfall on wet days is presented using Gamma, Exponential and mixed Exponential distributions. Combining the occurrence and the amount process models together, we developed Markov Chain Analogue Year Gamma model, Markov Chain Analogue Year Exponential model and Markov Chain Analogue Year Mixed Exponential model. The result shows that all the three models perform very well in the simulation of precipitation process in the study area and their performances are nearly the same with a slight difference. Using the results of these models, option prices for Teff and wheat crops for different months in their growing season are calculated. The calculated option price has an excellent accuracy with maximum absolute error of 0.54.
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