A review of the theory and practice in exploration and development of weather derivatives through integration of meteorology and finance in China

In the context of intensifying global climate change and frequent occurrences of extreme weather events, weather risk has emerged as a critical factor threatening the stability of the macroeconomy and the financial system. Weather derivatives mean financial derivatives based on weather indices (often referred to simply as "weather derivatives"), as innovative financial instruments for managing such risks, remain an undeveloped sector in China. This paper systematically reviews China's practical progress in policy support, multi-stakeholder collaboration, weather index development, and derivative product development and application. It elaborates on the significance of exploring weather derivatives to strengthen weather risk management in the real economy, unlock the value of meteorological data, and promote the interdisciplinary development of financial meteorology. Finally, the paper proposes future directions for research in financial meteorology, including prioritizing the needs of the real economy, integrating international experiences with national conditions, addressing fundamental market challenges, and establishing cross-departmental collaborative mechanisms. These recommendations aim to provide a reference for the exploration of weather derivative development pathways in China.