BY: MICHELE MORETTO
University of Padova
Department of Economics
Fondazione Eni Enrico Mattei (FEEM)
CESARE DOSI
University of Padova
Department of Economics
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Paper ID: FEEM Working Paper No. 87.2001
Date: October 2001
Contact: MICHELE MORETTO
Email: Mailto:moretto at decon.unipd.it
Postal: University of Padova
Department of Economics
via Del Santo 33
35123 Padova, ITALY
Phone: +39 049 8274265
Fax: +39 049 8274211
Co-Auth: CESARE DOSI
Email: Mailto:dosi at decon.unipd.it
Postal: University of Padova
Department of Economics
via Del Santo 33
35123 Padova, ITALY
Paper Requests:
Contact Publications Office, Fondazione Eni Enrico Mattei, Corso
Magenta 63, 20123 Milan, Italy. Mailto:ranzini at feem.it or
Mailto:racah at feem.it Phone: (02)52036938. Fax: (02)52036946 AB.
ABSTRACT:
A new instrument for hedging weather risks has made its
appearance in the financial arena. Trade in 'weather
derivatives' has taken off in the US, and interest is growing
elsewhere. Whilst such contracts may be simply interpreted as a
new tool for solving a historical problem, the question
addressed in this paper is if, besides other factors, the
appearance of weather derivatives is somehow related to
anthropogenic climate change. Our tentative answer is positive.
Since 'global warming' does not simply mean an increase in
averaged temperatures, but increased climate variability, and
increased frequency and magnitude of weather extremes,
derivative contracts may potentially become a useful tool for
hedging some weather risks, insofar as they may provide coverage
at a lower cost than standard insurance schemes.
Keywords: Global warming, climate variability, insurance
coverage, weather derivatives