WEATHER DERIVATIVES AS A FUTURES MARKET INSTRUMENT

Tonci Lazibat, Ivana Zupanic and Tomislav Bakovic
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Tonci Lazibat: University of Zagreb
Ivana Zupanic: University of Zagreb
Tomislav Bakovic: University of Zagreb

Economic Thought and Practice, 2009, vol. 18, issue 1, 59-78

Abstract: It is hard to find any business sector whose incomes are not, directly or indirectly, influenced by weather. And while weather risk may be the oldest risk businesses face with, it was not until recently that an effective management solution was developed. Weather risk differs from other sources of risk in many aspects, so it was necessary to create new management tool. In this regard, weather derivatives proved to be quite successful. Weather derivatives market is one of the newest and currently fastest growing derivatives market. This paper reviews the most recent literature on the subject and explains specificities of weather risk and weather derivatives. It presents weather market development and illustrates contract parameters. Furthermore, above mentioned is corroborated by several examples.

Keywords: weather risk; risk management; weather derivatives; hedging (search for similar items in EconPapers)
JEL-codes: F19 G13 (search for similar items in EconPapers)
Date: 2009
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