China is at the core of the world’s supply chain because of its focus on production and consumption. However, as weather can significantly affect supply chain operations, China plans to introduce weather derivatives to secure the multinational supply chain. Using historical records over the decade, weather derivatives could be an important tool for hedging risk and meeting the needs of Chinese market. In this paper, new weather indices for China financial markets are experimentally created through simulated machine learning to assess the ability of the weather indices to reduce risk. Through a simulation test from 2008 to 2017, the indices were found to successfully match 98% of the risk with the situation across two dimensions: i). changing Chinese weather data; and ii). a connection with US weather indices.
Zhu, Qing; Li, Jiarui; and Chai, Jian, "New Weather Indices for China: Tool of Risk Control of International Supply Chain" (2018). WHICEB 2018 Proceedings. 72.