Measuring Non-Catastrophic Weather Risks for Businesses

Abstract

While many published articles touch on the problem of using weather derivatives as tools for non-catastrophic weather-risk management, few studies have looked at the problem of appropriate risk measurement. This paper aims to present and evaluate all available methods used to identify and estimate the impact of non-catastrophic weather upon commercial enterprises. Correctly defining these parameters fundamentally affects building weather cover. Analysis of already existing methods of weather-risk measurement for businesses, as presented in the literature, has shown a few disadvantages. This paper proposes an improved approach to weather risk measurement – one based on an extended econometric model. We have empirically tested all the methods proposed herein and present our conclusions. The Geneva Papers (2009) 34, 425–439. doi:10.1057/gpp.2009.16