If the measurement is made at a location that produces slightly different temperature readings than those felt at the designated insured site, the terms and price of the derivative could be affected. I try to have the risk manager distinguish between price and value when considering a weather derivative, Dischel said. Value should be the number one priority. Determining that gives them a starting place. Then, analyze what a weather derivative market has to offer.
Most people start at price and forget to evaluate the value and protection a derivative brings.
It costs, because the provider wants to be paid for providing the protection. All rights reserved.