Optimizing Ski Slope Hedges to Preserve Alps Resorts | Bayes Business School
Faculty of Actuarial Science and Insurance at Bayes Business School is celebrating its 50th anniversary this year, reflecting on significant academic contributions over the years. In a groundbreaking study published in 2020, two academics proposed a unique solution to the challenges faced by ski resorts in the Alps due to climate change.
Weather Derivatives: A Strategic Solution
With the onset of milder European winters, ski resorts in the Alps are grappling with declining and unpredictable snow levels, leading to a drop in visitor numbers. To address this issue, academics from Bayes Business School recommended that ski resorts explore the use of weather derivatives, which are insurance-like financial products.
The Research Findings
The study, led by Professor Laura Ballotta and Professor Ioannis Kyriakou, analyzed snow depth and temperature data from an Austrian resort spanning over 50 years. Their analysis revealed that visitor numbers at ski resorts are intricately linked to snow depth and temperature variations throughout the season.
Based on historical data, the researchers suggested that ski resorts should consider obtaining separate weather derivative contracts for each month of the ski season. These contracts would be tailored to reflect the peaks and troughs in visitor numbers and revenues, mitigating the financial risks associated with adverse weather conditions.
Strategic Implications for Ski Tourism
Professor Ballotta emphasized the importance of diversifying risk management strategies beyond traditional methods like artificial snowmaking. The researchers highlighted the potential environmental and economic costs associated with such practices, underscoring the value of leveraging financial markets for weather derivatives.
Professor Kyriakou stressed the critical role of winter tourism in Alpine regions and the broader implications of climate change on the industry. By utilizing historical weather data and weather derivative contracts, ski tourism companies can safeguard their revenues and mitigate the impact of unfavorable weather conditions.
In conclusion, the study sheds light on the growing trend of utilizing weather derivatives in industries vulnerable to climate-related risks. As the market for weather derivative instruments continues to expand, ski resorts and other businesses are increasingly turning to these financial products to secure their financial future amidst changing weather patterns and environmental challenges.