Skip navigation
Skip navigation

Funding climate adaptation strategies with climate derivatives

Little, L. Richard; Hobday, Alistair J.; Parslow, John; Davies, Campbell R.; Grafton, Quentin

Description

Climate adaptation requires large capital investments that could be provided not only by traditional sources like governments and banks, but also by derivatives markets. Such markets would allow two parties with different tolerances and expectations about climate risks to transact for their mutual benefit and, in so doing, finance climate adaptation. Here we calculate the price of a derivative called a European put option, based on future sea surface temperature (SST) in Tasmania, Australia,...[Show more]

dc.contributor.authorLittle, L. Richard
dc.contributor.authorHobday, Alistair J.
dc.contributor.authorParslow, John
dc.contributor.authorDavies, Campbell R.
dc.contributor.authorGrafton, Quentin
dc.date.accessioned2015-09-06T23:48:57Z
dc.date.available2015-09-06T23:48:57Z
dc.identifier.issn2212-0963
dc.identifier.urihttp://hdl.handle.net/1885/15221
dc.description.abstractClimate adaptation requires large capital investments that could be provided not only by traditional sources like governments and banks, but also by derivatives markets. Such markets would allow two parties with different tolerances and expectations about climate risks to transact for their mutual benefit and, in so doing, finance climate adaptation. Here we calculate the price of a derivative called a European put option, based on future sea surface temperature (SST) in Tasmania, Australia, with an 18 °C strike threshold. This price represents a quantifiable indicator of climate risk, and forms the basis for aquaculture industries exposed to the risk of higher SST to finance adaptation strategies through the sale of derivative contracts. Such contracts provide a real incentive to parties with different climate outlooks, or risk exposure to take a market assessment of climate change.
dc.description.sponsorshipSupport for this research came from the CSIRO Climate Adaptation Flagship, Enabling Adaptation Pathways project.
dc.publisherElsevier
dc.rights© 2015 Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
dc.sourceClimate Risk Management
dc.subjectKeywords: Climate arbitrage; Option pricing; Regional climate adaptation; Stochastic simulation
dc.titleFunding climate adaptation strategies with climate derivatives
dc.typeJournal article
local.identifier.citationvolume8
dc.date.issued2015-04-11
local.identifier.absfor140205 - Environment and Resource Economics
local.identifier.ariespublicationa383154xPUB1692
local.publisher.urlhttp://www.elsevier.com/
local.type.statusPublished Version
local.contributor.affiliationGrafton, R. Q., Crawford School of Public Policy, The Australian National University
local.bibliographicCitation.issue1
local.bibliographicCitation.startpage9
local.bibliographicCitation.lastpage15
local.identifier.doi10.1016/j.crm.2015.02.002
dc.date.updated2018-11-29T08:17:10Z
local.identifier.scopusID2-s2.0-84928202909
local.identifier.thomsonID000216864000002
CollectionsANU Research Publications

Download

File Description SizeFormat Image
Little et al Funding Climate Adaptation Strategies 2015.pdf814.45 kBAdobe PDFThumbnail


Items in Open Research are protected by copyright, with all rights reserved, unless otherwise indicated.

Updated:  19 May 2020/ Responsible Officer:  University Librarian/ Page Contact:  Library Systems & Web Coordinator