Adaptation to flood and drought risk in Austria - VATT
Adaptation to flood and drought risk in Austria - VATT
Adaptation to flood and drought risk in Austria - VATT
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Weather derivatives –<br />
basic pr<strong>in</strong>ciple<br />
ClimateChange<br />
Causes<br />
Impacts<br />
Solutions<br />
• F<strong>in</strong>ancial <strong>in</strong>struments <strong>to</strong> hedge weather <strong>risk</strong>s<br />
• based on the pr<strong>in</strong>ciple of conventional derivatives,<br />
such as commodity, equity or <strong>in</strong>terest rate derivatives<br />
• Underly<strong>in</strong>g asset: weather <strong>in</strong>dex<br />
• Hedge quantity <strong>risk</strong>s <strong>in</strong>stead of price <strong>risk</strong>s<br />
• Trade: S<strong>to</strong>ck Exchange (CME etc.) vs. OTC (Over<br />
the Counter)<br />
• Advantage compared <strong>to</strong> <strong>in</strong>surances:<br />
• No costs for loss settlement<br />
• No moral hazard<br />
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