Weather derivatives are financial instruments that can be used by organizations or individuals as part of a risk management strategy to reduce risk associated with adverse or unexpected weather conditions. Settlement is objective, based on the final value of the chosen weather index over the chosen period.
Similarly, you may ask, are derivatives and CDOS the same thing?
Similarly, a Collateralized Debt Obligation (CDO) is not a derivative, but a security. It is similar in concept to an MBS, except the pool is not made up of mortgages, but rather various debt instruments, such as corporate bonds.
Is a CDS a derivative?
Naked CDS constitute most of the market in CDS. A "credit default swap" (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults or experiences a similar credit event.
What is an interest rate derivative?
It is defined by Wikipedia as the derivative instrument in which the underlying asset has the right to pay or receive money at a given rate of interest. In simple words, it is a financial instrument based on an underlying, the value of which is impacted by any change in the interest rates.