A security, swap or option whose value is directly related to weather events over a specified time in a specified location. Weather derivatives pay cash flows depending on occurrences such as deviations from average temperature, precipitation levels, etc. Companies use weather derivatives as a hedge against weather conditions damaging to their trade, e.g. pavement café suffers during a cool summer and may acquire heating degree days. See COOLING DEGREE DAYS; WEATHER SWAPS; WEATHER INDICES; ENERGY DEGREE DAYS; GROWING DEGREES; PRECIPITATION.