The article focuses on weather derivatives with the aim to present the substance of weather derivatives as relatively new financial products and to discuss their advantages and disadvantages when being used as a tool to diminish the loses coming from these suboptimal weather conditions. We conclude with the findings that weather derivatives have a great potential to develop further. They provide an opportunity to hedge against the suboptimal weather conditions at reasonable costs. However, the hedging effectiveness is the main issue to be analyzed in each specific business case.
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