New study proposes methodology for identifying effective hedging strategies based on weather derivatives.
Research by Cass Business School academics has presented a methodology for identifying how winter tourism operators can protect themselves against the risk of decreasing visitor numbers to ski destinations and lost revenues.
Due to the effects of climate change, ski tourism in the Alps is becoming endangered by decreasing levels of snow caused by rising winter temperatures.
Focusing on the use of weather derivatives as a means of revenue protection, the study uses a series of models to design useful weather derivatives payoff – where operators ‘sell’ risk to financial markets for a premium – by predicting visitor numbers and revenues in a given month. The methodology is based on more than 50 years’ worth of snowfall and temperature data recorded at a resort in Austria.
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