We examine if extreme weather exposure impacts firms’ cost of equity. Motivated by a consumption-based asset pricing model with heterogeneous agents, we reveal the existence of an extreme weather risk premium in the cross-section of stock returns. In the period from 1995 to 2019, domestic U.S....

Natural catastrophe risk is increasingly covered through alternative capital instead of classical reinsurance. As most instruments in this space do not trade in a secondary market, their ongoing valuation poses a challenge to investors. We suggest extracting pricing information contained in...