Weather risk management in ski resorts: Financial hedging and geographical diversification

As weather volatility increases, weather risk has become a critical management issue in weather sensitive industries. This study uses ski resorts as an example to examine two promising weather risk management strategies: geographical diversification and financial hedging. The empirical analysis results suggest that financial hedging might be a more effective strategy for ski conglomerates. Guidelines for ski conglomerates to achieve better weather risk management outcomes are provided based on simulating the interactions between geographical diversification and financial hedging. Although based on ski resorts and snowfall risk, the methodology is also applicable to other weather sensitive hospitality businesses. (C) 2010 Elsevier Ltd. All rights reserved.