An Introduction On Development And Application Of Weather Derivatives In China

In the thesis, the author firstly defines the concept of characters of Weather risks and weather derivatives. weather risks is defined as an kind of undesired possibility of fluctuation on company's revenue due to unexpected change of weather with non-catastrophic, quantitative and systematic characters in nature. Weather derivatives are one kind of financial derivatives which are developed to hedge weather risks.As one kind of financial derivatives, weather derivatives exist not basing itself on such Basic products as physic products, money, exchange rates and stocks indexes but on those such as temperature, rainfall and snowfall etc; these basic indexes carry on extraordinary characters which themselves are not commercial products and therefore have no trading price.Among various kinds of basic indexes for weather derivatives, heating or cooling degree index is the most widely used. One of indicator used to measure temperature is called Degree day(DD),which is used for calculating the deviation of every day temperature(ADT) from the basic temperature(bench mark line) which is originally offered. Two temperature values of most commonly used are called Heat Degree Days (HDD) and Cool Degree Day (CDD).the calculation of weather derivatives includes two dimensions: one is concerned with which place to choose by which calculation is undertaken; the other is about which period is to select. Besides HDDs and CDDs, there are still two kinds of temperature indexes which are commonly used, which are Energy Degree Days (EDDs) and Growth Degree Day (GDDs)Then, the author studied the specific forms of weather derivatives and accordingly offered some examples for application, which include weather futures, weather options and weather swaps etc. After making an introduction of basic theories of weather derivatives, its marketing mechanism and specific forms, the author demonstrate the imperative need and significance of developing weather derivatives fit for conditions in China. In the last two chapters, the author analyze the financial market conditions, policy and law environment as well as technical supports in our country and suggest the basic plans on how to develop the weather products in China.