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Comment by pwaivers | Hacker News Reader

Another interesting topic in the derivatives markets: https://en.wikipedia.org/wiki/Weather_derivative.

Basically you buy futures or options on the temperature, rainfall, and cloud cover. Super interesting!

Semi-related: In digital advertising you can buy ads based on the weather, at the current time, at the users location. This costs a small amount of money (advertiser pays a company for that data). So companies who know weather very precisely can sell that data. But other companies buy that same data from multiple companies, aggregate it, and claim theirs is more accurate. Other arbitrage the data. Others find average temps/etc and predict the weather.

So similar market forces are back, but fueled by advertising. The same thing happens with geographical data and million other data points.

We used this at work while hedging our electricity portfolio during last summer (we weren't covered 100%). It's a nice insurance that doesn't need a reason to pay off (if the threshold is met, it's payed). Very useful indeed for some specific applications.

This is an actual thing??!

If you don't understand it, why have you got an opinion of it ?

I don't have an opinion of it! I did search on the topic and found that it is indeed a thing, and the point of it is for farmers to hedge against bad weather. I don't understand it completely but it does seem to make sense in terms of stability. My ??! came across as indignant but it was honest! I watched a Khan video about how options improve stability also, it seems counter-intuitive but my grasp so far is that these instruments are good for stability and stability is important.

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