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Funding climate adaptation strategies with climate derivatives


Little, LR and Hobday, AJ and Parslow, J and Davies, CR and Grafton, RQ, Funding climate adaptation strategies with climate derivatives, Climate Risk Management, 8 pp. 9-15. ISSN 2212-0963 (2015) [Refereed Article]


Copyright Statement

Crown Copyright 2015. Licensed under Creative Commons Attribution 4.0 International (CC BY 4.0)

DOI: doi:10.1016/j.crm.2015.02.002


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.

Item Details

Item Type:Refereed Article
Keywords:climate arbitrage, option pricing, regional climate adaptation, stochastic simulation
Research Division:Environmental Sciences
Research Group:Environmental management
Research Field:Environmental management
Objective Division:Environmental Policy, Climate Change and Natural Hazards
Objective Group:Adaptation to climate change
Objective Field:Climate change adaptation measures (excl. ecosystem)
UTAS Author:Little, LR (Dr Richard Little)
UTAS Author:Hobday, AJ (Dr Alistair Hobday)
ID Code:118876
Year Published:2015
Deposited By:Zoology
Deposited On:2017-07-21
Last Modified:2017-09-26
Downloads:174 View Download Statistics

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