Applying Climate Derivatives to Flood Risk Management


  • Daniel Bloch,

  • James Annan,

  • Justin Bowles


As part of a new approach to dealing with flood risk, we demonstrate that index-based derivatives can provide a hedge to protect sea front developers and governments against financial disruption in the aftermath of adverse climate events by allowing risks to be transferred between entities having to manage the costs associated with sea-level rise. Finally, we apply such climate derivatives to flood risk management by assessing the costs and benefits on two projects: one relating to a rolling easement and the other incorporating the concept of a real option. Copyright © 2012 Wilmott Magazine Ltd.