TY - JOUR
T1 - Funding climate adaptation strategies with climate derivatives
AU - Little, Richard
AU - Hobday, A.J.
AU - Parslow, J.S.
AU - Davies, Campbell R
AU - Grafton, Quentin
PY - 2015
Y1 - 2015
N2 - Climate adaptation requires large capital investments that could be provided not only by traditional sources like governments and banks, but also by derivatives markets. Such markets would allow two parties with different tolerances and expectations about climate risks to transact for their mutual benefit and, in so doing, finance climate adaptation. Here we calculate the price of a derivative called a European put option, based on future sea surface temperature (SST) in Tasmania, Australia, with an 18. °C strike threshold. This price represents a quantifiable indicator of climate risk, and forms the basis for aquaculture industries exposed to the risk of higher SST to finance adaptation strategies through the sale of derivative contracts. Such contracts provide a real incentive to parties with different climate outlooks, or risk exposure to take a market assessment of climate change.
AB - Climate adaptation requires large capital investments that could be provided not only by traditional sources like governments and banks, but also by derivatives markets. Such markets would allow two parties with different tolerances and expectations about climate risks to transact for their mutual benefit and, in so doing, finance climate adaptation. Here we calculate the price of a derivative called a European put option, based on future sea surface temperature (SST) in Tasmania, Australia, with an 18. °C strike threshold. This price represents a quantifiable indicator of climate risk, and forms the basis for aquaculture industries exposed to the risk of higher SST to finance adaptation strategies through the sale of derivative contracts. Such contracts provide a real incentive to parties with different climate outlooks, or risk exposure to take a market assessment of climate change.
U2 - 10.1016/j.crm.2015.02.002
DO - 10.1016/j.crm.2015.02.002
M3 - Article
SN - 2212-0963
VL - 8
SP - 9
EP - 15
JO - Climate Risk Management
JF - Climate Risk Management
IS - 1
ER -