Weather indexes, index insurance and weather index futures

  • Received February 2, 2018;
    Accepted August 28, 2018;
    Published August 31, 2018
  • Author(s)
    Chengyi Pu
    ORCID ,
    Yueyun (Bill) Chen
    ORCID , Xiaojun Pan
  • DOI
    http://dx.doi.org/10.21511/ins.09(1).2018.04
  • Article Info
    Volume 9 2018, Issue #1, pp. 32-40
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This work is licensed under a Creative Commons Attribution 4.0 International License

This paper compares the weather insurance, weather index insurance and index futures and focuses on why China needs to develop weather indexes and adopt and trade weather index futures. It further discusses how to construct the indexes and futures and how to price them. Different from the Heating Degree Days (HDDs) and Cooling Degree Days (CDDs) used at Chicago Mercantile Exchange (CME), it develops the Extremely Heating Days (EHDs) and Extremely Cooling Days (ECDs) to derive relevant temperature-based weather index futures. Recently China has started using weather index insurance to cover farmers’ risk. Through comparisons of weather index futures with index insurance, this study shows the necessity and importance of using the weather index futures to better protect farmers and better develop China’s financial markets.

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    • Table 1. Summary of weather insurance, weather index insurance and weather index futures
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