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  • Thumbnail for Hedging Against Weather Risk: An Exploration of Weather Derivatives and Their Application to the Ski Industry
    Hedging Against Weather Risk: An Exploration of Weather Derivatives and Their Application to the Ski Industry by Toulmin, Sam

    Climate change will cause increasingly volatile winter weather, and the winter sports industry must adapt. Ski resorts already take operational steps, such as snowmaking or diversification of revenue streams, to reduce exposure to warm or dry winters, but operational strategies alone cannot effectively mitigate weather risk. Financial strategies should also be considered. While traditional insurance protects against catastrophic weather risk, weather derivatives are an emerging financial instrument to help businesses hedge against non-catastrophic weather-related losses. This thesis explores the field of weather derivatives and their application to the ski industry. Utilizing historical weather and skier visit data for Gunstock Mountain Resort in New Hampshire, the thesis models a series of weather derivative structures and their ability to reduce weather-related revenue volatility for the resort. Results from Gunstock demonstrate the potential of such hedging strategies. However, the effectiveness of weather derivatives may vary depending on the resort, and there are significant hurdles to their implementation.

  • Thumbnail for Derivatives usage : value-adding or value destroying?
    Derivatives usage : value-adding or value destroying? by Naito, Jack

    This thesis analyses a sample of 434 non-financial firms from the Standard and Poor 500 to investigate the relationship between derivative usage and firm value. The empirical tests do not produce any statistically significant results that suggest a negative relationship between the fair value of derivative instruments and firm value. These results, although not a part of a the original purpose of this thesis, suggest that investors value predictable non-extreme outcomes of risk exposures regardless of the firm's position in its derivative contracts hedging the same exposures.

  • Thumbnail for Derivatives usage and firm value
    Derivatives usage and firm value by Pande, Arjun

    This thesis analyzes a sample of large non-financial U.S. firms listed on the S&P 500 index to establish a concrete relationship between firm value and derivatives usage. Derivatives are widely utilized by firms to hedge various types of risks, however, the exact effects of derivatives usage and how such activities are perceived by the market are not very clear. An IV regression model is used since the decision to use derivatives is not exogenous. Both notional values and fair values of derivatives are considered in establishing a relationship with firm value. The results suggest that derivatives usage has a negative connotation and the market values user firms at a discount.