Design and Valuation of Weather Structured Financial Products

As global climate risks intensify, frequent climate disasters will significantly impact industries such as agriculture, energy, transportation, and tourism, and it would be of positive relevance to design a type of weather index-linked structured financial product to meet the real needs of these industries. In this paper, a structured product linked to a weather index is designed. First, the weather data is modeled, and the parameters required for the product design are obtained; second, a pricing model is developed to price the structured product; and finally, the value sensitivity of the financial product is analyzed. The results show that the product's value is not sensitive to the risk-free rate of return but is more sensitive to volatility. At the same time, it is more sensitive to strike price and product maturity under certain conditions.