| Weather Risk Management Solutions for Golf Courses
Scenario
A golf course
company owns and operates six golf courses located in the Midwest portion of the
United States. Because of the
geographic location of the golf courses, they do not operate during the colder
portion of the year and nearly all revenue is acquired during the late spring
through early autumn time period.
Additionally, their busiest and most profitable days are on weekends and
holidays, and rainfall on these days causes attendance to drop
significantly.
Solution
To reduce this risk the company
purchased a precipitation-event put option for weekends and holidays during the
May through September period, consisting of a basket of the six golf course
locations. Through the analysis of
rounds played and weather data, the amount of daily precipitation that resulted
in a significant decrease in rounds played was determined to be 0.25 inches;
therefore an event was defined as daily precipitation greater than or equal to
0.25” at any of the six course locations.
After 46 such events, the company received $50,000 per event, their
anticipated revenue shortfall, up to a maximum payment of $400,000.
| Time Period Covered |
Weekends and Holidays, May 1 through September
26 |
| Hedge Type |
Call Option |
| Weather |
Sum of Daily Precipitation greater than or equal to 0.25
inches |
| Strike |
46 events |
| Tick |
$50,000 |
| Maximum Payment |
$400,000 |
| Premium |
$63,000 |
Summary <P
cl
|