Hedging Weather and Catastrophe Risks using Commodity Futures as Weather Derivatives in India

Gowtham Ramkumar

doi:10.20968/rpm/2019/v17/i1/145650

Abstract

Hedging Weather and Catastrophe Risks using Commodity Futures as Weather Derivatives in India

Highlights

While agriculture is considered as backbone of the Indian economy, the sector is prone to high weather risks and other risk calamities
Weather derivatives and catastrophe derivatives seems to be a good solution for risks caused due to climatic conditions
Weather derivatives are often different from other derivatives as often they are focused on hedging against the volume of yield and less emphasis is given for price risk

Summary

Introduction

While agriculture is considered as backbone of the Indian economy, the sector is prone to high weather risks and other risk calamities. For more than a century, these risks are covered by crop insurance schemes provided by the central and state governments and by private insurance companies. These schemes are becoming less significant and less effective as the compensation provided by these schemes are not able to cover the losses and time taken to provide compensation is too long. The instruments in derivatives market that serve this purpose are called weather derivatives and Gowtham Ramkumar, Assistant Professor, Department of Commerce, Madras Christian College, East Tambaram, Chennai, Tamilnadu catastrophe derivatives. These are in developing stage or at basic level in India

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