Introduction of weather-derivative concepts: perspectives for Portugal

Purpose – The purpose of this paper is to present an overview of weather derivatives markets and to highlight the importance of the contributing factors for weather risk management such as weather sensitivity, weather forecast, and economic growth. In this paper, the prospective of using weather derivatives in Portugal and why Portugal should use such instruments as well as the potential of Portugal's enterprises are presented. Design/methodology/approach – This paper attempts to distinguish the reasons for the appearance of a weather derivatives market and the growth potential of the European weather market. Findings – Successful development of a Portuguese weather derivatives market will require three things. For the successful development of weather derivatives market, a legal and economic framework is needed, as well as the development of new weather products, training of qualified specialists for working with these instruments and attracting companies interested in hedging their profits. A combination of these factors will help growth and will accelerate the development of a weather derivatives market in Portugal. Originality/value – The paper identifies some conditions that could allow the progress of the weather derivatives market in Portugal.