What in the world is a "Weather derivative"?


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I really had no idea such things existed:

Energy companies, hedge funds and commodity traders are stepping up their use of financial products that let them bet on the weather, as they seek to protect themselves against – or profit from – the increasingly extreme global climate....

Weather derivatives let buyers hedge against the risk that the weather will damage their business. Unlike insurance, where companies must prove they have suffered a loss, they pay out based on indexes. These might track the temperature in Paris or rainfall in New York.

Use of Weather Derivatives Surges as Extreme Climate Events Rock the Globe

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