Hari Krishnan - Market Tremors & Tail Hedging (S5E11)
Flirting with Models
00:00
Weather Derivatives vs Financial Derivates?
You cannot hedge in the underline. I haven't seen anyone buy and sell a sunny day or the level of rainfall in a region over time. If you got to trade options on the weather, you're basically making a directional bess. So maybe weather derivatives are a little like the vics, but they're not the victs because they cannot be assembled from tradable financial instruments. They're also a bit like fixed income in a way, because at least the historical quant models have a degree of mean reversion priced in. And the weather's a bit like that. It doesn't stray that far. Probably it's even more well behaved than rates are. But by the same
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