Global Warming and Financial Umbrellas

24 Pages Posted: 4 Dec 2001

See all articles by Michele Moretto

Michele Moretto

University of Padua, Dep of Economics and Management

Cesare Dosi

University of Padua - Department of Economics; CRIEP - Centro Universitario di Ricerca sull’Economia Pubblica

Date Written: October 2001

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

JEL Classification: G10, Q20

Suggested Citation

Moretto, Michele and Dosi, Cesare, Global Warming and Financial Umbrellas (October 2001). Available at SSRN: https://ssrn.com/abstract=291946 or http://dx.doi.org/10.2139/ssrn.291946

Michele Moretto (Contact Author)

University of Padua, Dep of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 8274265 (Phone)
+39 049 8274211 (Fax)

Cesare Dosi

University of Padua - Department of Economics; CRIEP - Centro Universitario di Ricerca sull’Economia Pubblica ( email )

via Del Santo 33
Padova, 35123
Italy
049+8274049 (Phone)
049+8274221 (Fax)

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