a financial instrument that has a payoff derived from one or more independently measurable weather factor(s) like temperature, snow depth and many others

An instrument used by companies to hedge against the risk of weather-related losses. The investor who sells a weather derivative accepts the risk by charging the buyer a premium. If nothing happens, then the investor makes a profit. However, if the weather turns bad, then the company claims the money.

The price paid by investors per share at issue minus the par value per share, times the number of shares issued. Paid-in surplus is recorded in the balance sheet under the shareholders' equity section. also called additional paid-in capital. See Also derivative, catastrophe bond, catastrophic coverage

A derivative whose payoff is based on a specified weather event, for example, the average temperature in Chicago in January. Such a derivative can be used to hedge risks related to the demand for heating fuel or electricity.

An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.