How do weather derivatives work?

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  • BenutzernameMoneyland User Questions
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How do weather derivatives work? Are they a high-risk investment product?

  • BenutzernameMoneyguru von
  • OrtSchweiz
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  • Registriert seit8/4/15
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Hi there,

Weather derivatives are financial instruments the returns of which are dependent on weather. Typically weather derivatives are used to hedge investments against weather hazards. Catastrophe bonds - which pay out generous coupons but default on principal repayment if weather hazards occur during bond terms - are one example of a weather derivative.

Best regards from Moneyguru

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