Feasibility Study Of Weather Derivatives Timely Launch Of China

The change of weather has very close connection with our economic and life.China is a largeagriculture country that has a long history of depending its harvest on the state of weather. Besides weatherrisks impact the relevant scales and profits of many industries such as Energy, Construction and Tourism.Weather risk can be divided into Disaster weather risk and General weather risk. Traditional insurance canwell mitigate and control the disaster weather risk which combines high risk and low probability, but thereis no such insurance going well for general weather risk. The research object of this article is the generalweather risk. For weather influences risk factors in economic life, as a kind of special avoid generalweather risk the most effective new risk management tool, weather derivatives is not only an innovation offinancial derivatives but also highly perfect capital market,which has very broad development prospects.The opening part of this paper introduces the basic definition of weather risk and weather derivatives andthe present situation of our country weather derivatives, at the same time, comparing with traditionalfinancial derivatives the uniqueness of weather derivatives are obtained, lay the foundation for follow-upstudy.After that, the study of weather derivatives pricing theory, using classification study respectivelyintroduces the four types of weather derivatives index and the three main types. In its basic index, thetemperature index is one of the most main is the most widely used, this article focuses on this, and inZhengzhou in62, the annual average temperature of data processing are briefly analyzed.The followingpart elaborate on the theory of weather derivatives pricing models which always use temperature index asbasic subject matter. Traditional pricing method such as no arbitrage pricing method cannot be applied togenerate the pricing of weather derivatives, so this paper selects three practical models namely Monte Carlosimulation method, Cao and Wei (2000) model and mean reversion of pricing model. The aim of thisempirical analysis is to explore the weather derivatives pricing model accustomed to the weather conditionof China. On the basis of the preliminary design in our country in order to launch template of weatherderivatives contracts. The following part explains the application feasibility of introducing weather derivatives tocapital market. a) the realistic significance of providing another channel of dispersing risk and enriching theinvestment products of financial derivatives market which will help China compete in the internationalfinancial markets b)employing the PEST model proposed by Management to analyze the feasibility ofweather derivatives from the perspectives of political, economy, society and technology c)the initial partcomes as proposing the path selection and detailed design of bringing weather derivatives to China. Owingto the general application of temperature index in measuring the industry weather risk, the author holds thesame opinion as most scholars in China that we should learn from foreign successful experience in weatherderivatives dealing and select the temperature index as underlying subject matter to formulate standardizedfuture contracts, completing the original design of weather derivatives.Choose standard time in DalianCommodity Exchange to launch in China will be a good idea.This paper mainly explore the feasibility of introducing weather derivatives to capital market andthe possibility of using weather derivatives to conduct weather risk management and yield economic valuesfor varied industries of national economy, on the basis of existing research findings and the reality inChina. Begun to take shape and the maturity of capital market in China,we also have introduced thefeasibility of macroeconomic.But in the view of our country’s economy is still in the reform, developmentand transformation.So the conclusion is the capital market should be improved in financial environmentand support policy to smooth the research and implementation procedure of weather derivatives.Considering its realistic significance in weather risk management, the weather derivatives,as the product ofthe advanced stage of the capital market, should be introduced to our capital market step by step andgradually improve the financial derivatives market in our country.Then the weather derivatives in ourcountry will be able to successfully in a better environment.