Definition for : Weather derivative

Designates a form of derivatives which is indexed on climate-related events, such as rain, temperatures or tempest. This can be used by corporates to hedge any abnormally-high Exposure to these risks. Payments under the hedge would compensate for the loss of Income (E.g. reduced grain output due to torrential rains in June).

(See Chapter 49 Managing working capital of the Vernimmen)

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