A financial instrument that derives its value from an underlying asset (equity, bon or commodity) or an underlying index. A weather derivative is linked to an index derived from a weather variable such as temperature and addresses the volume risk of weather-sensitive firms. Financial derivatives are used as a tool to manage financial price risks. They consist of: forward contracts, tailor-made contracts to eliminate the risk of some form of price uncertainty; futures contracts, exchangetraded standard forward contracts; swaps, a package of forward contracts simultaneously arranged; options, financial markets equivalent of an insurance policy. These contracts allow entities to hedge against future price changes or take positions to offset the impact of unwelcome price changes or other specified conditions.