This paper examines the effectiveness of using a hedging strategy involving a basis derivative instrument to reduce the negative financial consequences of weather-related risks. We examine the effectiveness of using this basis derivative strategy for both summer and winter seasons, using both...

Purpose – The purpose of this paper is to examine empirically the basis risk and hedging efficiency of temperature‐indexed standardized weather derivatives in hedging weather risks in the US energy industry. Design/methodology/approach – Within the risk minimization framework, using power...