weather derivative
Definition
A financial instrument used by companies to reduce the risk associated with adverse or unexpected weather. The seller of the derivative accepts the risk by charging a premium to the buyer: if nothing happens, the seller makes a profit, but if the weather turns bad, the company claims the money. Unlike insurance, weather derivatives cover high-probability events.
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Related Terms
derivative, catastrophe bond, catastrophic coverage
'weather derivative
' appears in the definitions of these terms on BusinessDictionary.com
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