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  • Welcome to the Investors Trading Academy talking glossary of financial terms and events.

  • Our word of the day isWeather Derivative

  • A weather derivative is a futures contract or options on that futures contractwhere

  • the underlying commodity is a weather index. These derivatives work much the same way that

  • interest-rate or stock index futures and options do, by creating a tradable commodity out of

  • something that is relatively intangible. Analysts look at historical weather patternstemperature,

  • rainfall and other thingsdevelop averages, and quantify the risk that weather will deviate

  • from the average. Corporations use weather derivatives to hedge their risk that bad weather

  • will cause a financial loss. For a cereal company, bad weather might be a drought, which

  • would cause wheat prices to go up. For a home heating company, it could be warm days in

  • November, which could lower demand for home heating oil. And for an amusement park it

  • could be rain.

  • The cereal company and the amusement park might buy futures contracts with an underlying

  • weather index based on rainfall. The home heating company might want contracts based

  • on a temperature index.

  • Weather derivatives are different from insurance, because theyre linked to common weather

  • events, like dry seasons, or a warm autumn, that affect particular businesses. Insurance

  • is still required to protect against major weather events, like tornadoes, hurricanes,

  • and floods. You can buy weather derivatives as an individual, but youll want to consider

  • the trading costs carefully to ensure that your risk of loss is worth the expense.

Welcome to the Investors Trading Academy talking glossary of financial terms and events.

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B1 中級

天気デリバティブとは? (What is a Weather Derivative?)

  • 613 30
    richardwang に公開 2021 年 01 月 14 日
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