Whilst common intuition and the rapid growth of weather derivative practices effectively support the notion that equity returns are sensitive to weather randomness, empirical support is fragile. This thesis is the first study that investigates weather exposure and weather risk-return trade-off consistent with the arbitrage pricing theory (APT). It explores weather risk and its premium in the U.S. market during January 1980 to December 2009, based on three of the most weather-influenced industries. The research starts with the construction of ten seasonally-adjusted weather measures as the proxies of unexpected temperature, gauged in Fahrenheit degree and percentage terms. The weather exposures of individual firms are estimated based on each of the ten measures and the market return. Although average weather exposure coefficients are small, the number of firms with significant estimates is more than attributable to chance and results are more profound in utilities. The weather coefficients are mainly stable over the sample period, indicating that the introduction of weather derivatives does not significantly impact a firm’s weather exposure. Further investigation into summer and winter time reveals that most of the significant weather betas are found in winter. However, only a minority of firms have statistically different weather betas between the two seasons. Results are robust with respect to the ten measures. The finding that unpredictable weather broadly affects groups of stocks has a direct implication in asset prices, as weather risk may be one of the priced factors. In this study, the weather risk premium is estimated using the standard two-pass Fama and MacBeth (1973) methodology, enhanced with Shanken’s adjustments for the errors in variables problem. The tests are based on firm-level and portfolio-level regressions, assessed by different model specifications and repeated for the ten weather measures. In the unconditional setting, there is little support that the market price of weather risk is not zero. Although the estimates are insignificant, the magnitudes of weather premiums are relatively high compared with those of other macroeconomic factors in previous literature. Most of the estimated weather pricings are negative; thus, stocks exposed to weather should be hedged against an unanticipated increase in temperature. The main pricing results are robust to alternative sample sets, portfolio formations, base assets and weather measures. Nonetheless, the significance of weather premium is slightly affected by model specifications. In few cases, the pricings of weather risk are significant when the positive values of weather betas are used in cross-sectional regressions.

The weather derivative concept was created in the United States of America as a result of the deregulation of its energy industry. When other countries learnt of this concept they decided to enter the market as well. Thus a body called the Weather Risk Management Association was established. This body’s main function is to collate information pertaining to weather risk and to help the process of advancement and growth within the market. The weather risk market has grown tremendously and various participants across the world are using weather derivative products to protect the revenue of their respective companies against adverse weather condition. South Africa entered the weather risk market and it’s contracted its first weather contract in February 2000. The objective of this study is to evaluate the South African financial market perceptions on weather derivatives and to establish the feasibility of use. The study also places emphasis on the importance of evaluating the South African economic conditions in order to achieve the goal of the study. Hence the study evaluates the different aspects in terms of the legal, accounting, taxation, weather data, and structuring and pricing implications of a weather derivative transaction. Thus a survey was designed, forwarded, and received back from professionals in the legal, accounting, taxation, weather data, and structuring and pricing fields. This analysis was conducted to evaluate the South African financial market’s perceptions on weather derivative applications. / Prof. C.H. van Schalkwyk

[pt] O mercado de Derivativos Climáticos no Brasil ainda é incipiente. Uma das barreiras que atrapalham o aumento da liquidez no mercado é certamente a incerteza que está por traz da precificação e a falta de conhecimento por vários setores dos campos de aplicação potenciais desses derivativos. Com o objetivo de reduzir esta incerteza, este estudo revê abordagens para modelar e estabelecer previsões por modelos de séries temporais para a temperatura na cidade do Rio de Janeiro, e consequentemente para o índice de Cooling Degree Days (CDD) desta localidade. Três modelos são propostos para a previsão da média diária de temperatura, dois benchmark (Holt-Winters e Box & Jenkins) e um pela Transformação de Fourier combinado com o processo GARCH para a variância. Os resultados sugerem que o modelo baseado na transformação de Fourier consegue melhor performance na previsão que os demais. / [en] The Weather Derivative market in Brazil quite inexist. One of the barriers to enhance liquidity in this market is the uncertainty in pricing derivatives. With the aim of reducing this uncertainty, this study reviews approaches of time series to model and forecast the temperature in Rio de Janeiro, and consequentely forecast the Cooling Degree Days (CDD) index of this location. Tree models are proposed to forecast the average daily temperature, two benchmark (Holt-Winters and Box & Jenkins) and one with Fourier Transfom with variance modeled with GARCH process. The results suggest that, overall, the model based on Fourier Transform have the best performance to forecast the serie.

Thesis deals with weather derivatives and their position within other financial instruments. It is divided into five main parts. The aim of the first part is to describe the basic mechanism and hallmarks of derivatives as a part of financial market. Also a brief history of weather derivatives is charted. The second chapter is focused on risk and fundamental risk factors and approaches. The weather risk management is presented. The third part discuses weather risk as special kind of risk. This part analyzes the impact of weather on the economy. The differences between weather derivatives and insurance are highlighted. The fourth chapter presents the weather derivatives from the users' points of view; it describes weather derivatives' structure and usage, main underlying indices and also looks on the pricing issues. In the final part the current situation and the possible future evolution of weather derivatives is presented. This part also includes information about the main organizations dealing with either weather management or derivatives.

Die Beiträge der vorliegenden Dissertationsschrift untersuchen zum einen, inwieweit Wetterindexversicherungen einen Beitrag zur Stabilisierung von wetterbedingten Einkommensschwankungen in der Landwirtschaft leisten können. In der Landwirtschaft ist trotz bedeutender wetterbedingter Einkommensschwankungen bisher nur ein sehr verhaltener Einsatz von Indexversicherungen zu beobachten. Allerdings gibt es bislang kaum Studien, die Möglichkeiten zur Reduzierung des mit dem Einsatz von Wetterindexversicherungen verbundenen Basisrisikos untersuchen. Zum anderen wird untersucht, inwieweit Wetterrisiken das Rückzahlungsverhalten landwirtschaftlicher Mikrokreditnehmer beeinflussen. Das Risiko bei der Kreditvergabe an landwirtschaftliche Klein-Betriebe in Entwicklungs- und Schwellenländern gilt aus Bankensicht aufgrund der vergleichsweise hohen Einkommensschwankungen in der landwirtschaftlichen Produktion als besonders hoch. In der Literatur wird das wetterbedingte Einkommensrisiko als wesentlicher Grund für das vergleichsweise hohe Kreditrisiko von landwirtschaftlichen Mikrokrediten angeführt. Allerdings wurde dies bislang noch nicht empirisch verifiziert. Die Dissertationsschrift widmet sich dem Thema in vier Beiträgen, die unterschiedliche Aspekte der übergeordneten Problematik behandeln.

[pt] A sociedade de risco simboliza o momento civilizatório atual, em que os efeitos secundários não desejados de uma modernização exitosa (para os que com ela se beneficiam, frise-se) se tornaram incontroláveis. Mais do que isso. Vive-se atualmente em um mundo em metamorfose, no qual as certezas da sociedade moderna estão sendo solapadas diante de eventos globais significativos (Beck, 2017), como as mudanças climáticas e a pandemia do Covid-19. Dessa forma, não se pode prever, mesmo diante de todo o avanço do conhecimento técnico-científico, qual será o impacto dessa crise humanitária avassaladora que atinge a todos e ressalta a efemeridade do ser humano diante dos efeitos colaterais do mundo moderno. Embora os riscos climáticos apresentem uma tendência globalizante e um efeito equalizador, a distribuição de tais riscos costuma seguir a lógica da vulnerabilidade local, ocorrendo de forma socialmente desigual e injusta. A articulação da teoria do risco com o movimento da justiça ambiental e climática possibilita questionar a iniquidade na distribuição de riscos ambientais, em especial os climáticos, além de introduzir importantes ferramentas conceituais que problematizam a privatização de bônus e a socialização de ônus decorrentes da exploração de atividades poluentes. As instituições, como o Estado e o próprio Direito, que deveriam regulamentar e controlar a sua produção e externalidade, acabam produzindo uma espécie de normalização de riscos, de modo a legitimar os conflitos resultantes de situações de injustiça socioambiental, fenômeno que Ulrich Beck (1995) denomina de irresponsabilidade organizada. A insuficiência de respostas domésticas à produção de riscos globais e a ausência de coercitividade do direito internacional sinalizam o relevante papel que os Tribunais em todo o mundo – apesar das limitações e contradições inerentes ao próprio Poder Judiciário enquanto instituição estatal – estão sendo instados a atuar na governança climática, decidindo ações em que se discutem lacunas legislativas e regulatórias, descumprimento de metas de redução e compromissos climáticos, sob a releitura de direitos fundamentais no tratamento de conflitos climáticos, à luz do chamado constitucionalismo climático. Utiliza-se o método indutivo e a metodologia de pesquisa se baseia, além da análise da previsão normativa, na revisão bibliográfica nacional e internacional e no estudo dos precedentes judiciais brasileiros e estrangeiros de maior repercussão envolvendo matéria climática. Espera-se que a análise articulada da teoria da sociedade de risco e do movimento da justiça ambiental aliado à perspectiva climática forneça importantes subsídios teóricos para a confirmação da hipótese levantada nesta tese, a saber: se (e como) a litigância climática pode representar uma importante estratégia de promoção da justiça climática para contribuir para a redução das desigualdades socioambientais resultantes da produção e externalização injusta e desigual de riscos climáticos, mediante aplicação de ferramentas já existentes no sistema jurídico pátrio voltadas à prevenção e reparação de impactos e danos climáticos. / [en] The risk society symbolizes the current civilizational moment, in which the unwanted side effects of successful modernization (for those who benefit from it, it should be noted) have become uncontrollable. More than that. We currently live in a world in metamorphosis, in which the certainties of modern society are being undermined in the face of significant global events (Beck, 2017), such as climate change and the Covid-19 pandemic. In this way, it is not possible to predict, even in the face of all the advance of technical-scientific knowledge, what will be the impact of this overwhelming humanitarian crisis that affects everyone and highlights the ephemerality of the human being in the face of the side effects of the modern world. Although climate risks have a globalizing trend and an equalizing effect, the distribution of such risks usually follows the logic of local vulnerability, occurring in a socially unequal and unfair way. The articulation of risk society theory with the environmental and climate justice movement makes it possible to question the inequity in the distribution of environmental risks, especially climatic ones, in addition to introduce important conceptual tools that problematize the privatization of bonds and the socialization of burdens resulting from the exploitation of polluting activities. Institutions, such as the State and the legal system, which should regulate and control the production and the externality of these risks, end up producing a kind of risk normalization, in order to legitimize conflicts resulting from situations of socio-environmental injustice, a phenomenon that Ulrich Beck (1995) calls organized irresponsibility. The insufficiency of domestic responses to the production of global risks and the lack of coerciveness of international law signal the relevant role that Courts around the world - despite the limitations and contradictions inherent to the Judiciary itself as a state institution - are being urged to act in climate governance, deciding actions that discuss legislative and regulatory gaps, non-compliance with reduction targets and climate commitments, under the reinterpretation of fundamental rights in the treatment of climate conflicts, in the light of the so-called climate constitutionalism. The inductive method is used and the research methodology is based, in addition to the analysis of applied legislation, on the national and international bibliographic review and on the study of Brazilian end foreign judicial precedents of greater repercussion involving climate matters. It is expected that the articulated analysis of the risk society theory and the environmental justice movement allied to the climate perspective will provide important theoretical support to confirme the hypothesis raised in this thesis, namely: if (and how) climate litigation can represent a important strategy to promote climate justice to contribute to the reduction of socio-environmental inequalities resulting from the unjust and unequal production and externalization of climate risks, through the application of existing tools in the national legal system aimed at preventing and repairing climate impacts and damages.

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