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Abstract

In this study, the authors examine the effect of geographical diversification on risk exposure to snowfall risk and the hedging effectiveness of hypothetical snowfall forwards. The graphical simulation of the model based on a hypothetical two-property ski resort suggests that, from a risk reduction point of view, the “best” property to be acquired would be the one whose basis is positively correlated with the existing basis and negatively correlated with the existing snowfall. The “best” property is the property that allows the hedging in place to reach the highest hedging effectiveness.

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Weather Risk Management in Ski Resorts: Exploring the Effect of Geographical Diversification on Financial Hedging

In this study, the authors examine the effect of geographical diversification on risk exposure to snowfall risk and the hedging effectiveness of hypothetical snowfall forwards. The graphical simulation of the model based on a hypothetical two-property ski resort suggests that, from a risk reduction point of view, the “best” property to be acquired would be the one whose basis is positively correlated with the existing basis and negatively correlated with the existing snowfall. The “best” property is the property that allows the hedging in place to reach the highest hedging effectiveness.