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A blockchain-based platform for trading weather derivatives

Author

Listed:
  • Fernando Alves Silveira

    (Banco do Brasil S.A
    University of Southern Santa Catarina)

  • Silvio Parodi de Oliveira Camilo

    (Banco do Brasil S.A
    University of Southern Santa Catarina)

Abstract

This study investigated the technical and economic viability of hedging electricity consumption using weather derivatives and smart contracts. For this purpose, we priced call options to hedge against excess of temperature for 5 Brazilian cities. We also developed a distributed autonomous application (DApp) using smart contracts, which allows individuals to negotiate these financial instruments. Our findings suggest that blockchain technology can be useful in providing a low-cost infrastructure to develop financial instruments to hedge weather-related losses. The cost of providing this platform has been estimated to be less than 300 USD. The price of options has been estimated under 50 USD. This is particularly useful for electricity consumers and small businesses in poor countries. In addition, this study provides a comprehensive guide for the development of financial solutions using smart contracts to mitigate climate change impacts.

Suggested Citation

  • Fernando Alves Silveira & Silvio Parodi de Oliveira Camilo, 2024. "A blockchain-based platform for trading weather derivatives," Digital Finance, Springer, vol. 6(1), pages 3-22, March.
    • Handle: RePEc:spr:digfin:v:6:y:2024:i:1:d:10.1007_s42521-022-00071-9
    DOI: 10.1007/s42521-022-00071-9
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    More about this item

    Keywords

    Smart contracts; Climate change; Blockchain; Derivatives pricing; Temperature modelling;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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