Managing Risk of Ski Resorts with Snow Options

Abstract

The main problem for the tourism businesses which operate in ski resorts is that their revenue are strictly connected to the cumulative snowfall level. The uncertainty about the snowfall due the climate changing has made this type of business highly risky, for this reason few or no investments are made every year to improve the resorts, the slopes or the lifts; continuing in this way, the resort in few years will face to a loss in competitiveness, thus less tourists, less revenue and less business. The present work purposes to show a possible hedging strategy against the financial problems due to the scarcity of snow: the weather derivatives. Due to the fact that in Italy there are many ski resorts situated at an altitude from 1300m to 2000m, we focus our analysis on Andalo, in Italian Alps and we obtain the estimated prices of a put snow option by applying three different methods proposed in literature. We suggest, finally, the ideal prices for Paganella lift operator in Andalo, showing how the use of weather derivatives may be very helpful in the risk management for ski resort related to snow scarcity events.

Keywords

• Ski Tourism, Management, Climate Changing, Tourism Business