Weather Derivatives: An Attractive Additional Asset Class

Posted: 21 Nov 2004

See all articles by Teddy Oetomo

Teddy Oetomo

Schroder Investment Management Indonesia

Maxwell Stevenson

University of Sydney - School of Business - Finance Discipline; Financial Research Network (FIRN)

Andre de Vries

ABN AMRO - ABN-Amro Bank, The Netherlands

David van Lennep

ABN AMRO - ABN-Amro Bank, The Netherlands

Abstract

This article demonstrates that companies from a wide-range of industries are able to hedge against the volatility of their revenues more efficiently by resorting to non-standardized weather derivative contracts. In addition, including weather derivatives contracts as an additional asset class produces significant diversification benefits for conventional portfolios. This study proposes that institutional investors write non-standardized contracts for their corporate clients, repackage them and offer them as an additional asset class. This strategy would help to mitigate the lack of liquidity inherent in non-standardized contracts and, simultaneously, provide significant diversification benefits for the conventional portfolio.

Keywords: Weather derivatives

JEL Classification: G12

Suggested Citation

Oetomo, Teddy and Stevenson, Max and de Vries, Andre and van Lennep, David, Weather Derivatives: An Attractive Additional Asset Class. Available at SSRN: https://ssrn.com/abstract=573183

Teddy Oetomo (Contact Author)

Schroder Investment Management Indonesia ( email )

31 Gresham Street
London, EC2V 7QA
United Kingdom

Max Stevenson

University of Sydney - School of Business - Finance Discipline ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Andre De Vries

ABN AMRO - ABN-Amro Bank, The Netherlands ( email )

NL-1000 EA Amsterdam
Netherlands

David Van Lennep

ABN AMRO - ABN-Amro Bank, The Netherlands ( email )

NL-1000 EA Amsterdam
Netherlands

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