The Contract Design And Application Of The Domestic Weather Future

Since the problem of China’s economy subjected to the weather riskbecome increasingly prominent, with the weak weather risk managementin China, weather futures and the related derivatives as the most effectivemethod in hedging weather risk, are becoming the object that we areeager to apply.However, the China capital market is still immature, as thus, therewill be still some problems in introducing the weather futures into China.The important one of them is how to make a fair price. Due to thedifference from the commodity future and finance derivatives, theunderlying index of weather future is not real goods or financial assets,which can be traded. Therefore, there is still no such a perfect pricingmodel, which we can use in weather futures pricing. This article willintroduce some existing research achievement and pricing model, andthen provide some advice of the contract design of the domestic weatherfuture, by take the China’s present situation into consideration.On the other hand, the author will put a lot of focus on the discussionregarding how to make money from the weather futures trading, as apersonal investor role. The key idea is to take advantage of the arbitrage trading strategy to earn the profit, by analyzing the essential of the pricespread between the related contracts.Lastly, the author sincerely hopes that this article could be not only afinal paper of MBA, but a platform for communication, learning fromeach other, and knowledge sharing as well.