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Why would a company (other then an energy company) buy a weather derivative? What is a...

Why would a company (other then an energy company) buy a weather derivative?

What is a situation that someone would buy a weather call option to hedge risk ?
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Answer #1

Explanation -

(1) A sports Management company would be interested in buying a weather derivative. Such company can hedge its risk of loss if there is rainy day during sports hour and only fewer tickets are sold. Hence to bear with this loss, weather derivative is bought out to hedge against loss.

(2) Situation of buying a weather call option (type of weather derivative) if call option buyer wants to bear no risk. All he is required to do is to pay premium to seller of call and in exchange he would get the right to buy underlying at later date.

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