Abstract
Due to the global warming in recent years, the climate in Taiwan becomes even more complicated. Some other countries have already managed weather risk for years, and some industries have focused on applications of weather derivatives, such as energy, clothing and beverage industries. However, there are still a number of industries which do not aware the impact of climate change. Alternatively, they have noticed the influences but still using traditional insurances rather than weather derivatives to hedge possible weather risk, resulting in limitation of development of weather derivatives. The purpose of this paper is to emphasize the importance of the management of weather risk and introduce some common weather derivatives. Our major job objective is temperature derivatives. We will discuss pricing methods of temperature derivatives, including a part of theories. We will then use the data in Taiwan cities, including Keelung, Miaoli, Taichung, Kaohsiung and Taitung, to do the empirical analysis. We find that burn analysis have good performance to the futures contracts in same year. When the temperature is more stable in the season of contracts, the performance of burn analysis is more excellent.