Weather Risk Mapping, LLC
Weather Risk Mapping, LLC (WRM) provides a standardized, yet highly customizable, cost effective method of quantifying weather risk for a wide variety of weather-sensitive businesses and non-commercial enterprises. The method associates historical weather types with weather-sensitive business metrics. These metrics (e.g., revenue, expense, profit, and non-monetized metrics) are ideally available from historical records from each business, but may be estimated from known or suspected links to weather. For proprietary reasons, the metrics need not be disclosed, but instead disguised through linear transformation (i.e., standardized) without affecting their weather sensitivity.
Historical weather types are determined algorithmically by using a self-organizing feature mapping neural network to disperse customized weather indices (single or multiple) in a manner analogous to a prism dispersing sunlight into color “types”. The weather risk assessment, which is performed once, produces weather-dependent metric distributions for each weather type, free from basis risk, and amenable to probabilistic estimates of loss or gain dependent on the weather. Current and forecast weather conditions, updated regularly, are “mapped” onto the historical weather/metric associations to monitor recent risk and project future risk. Estimating future risk allows anticipating losses, which might be mitigated, or gains, which might be accentuated, through operational adjustments.
The method is restricted to non-catastrophic weather risk because of the sampling requirements for historical analogs of each weather type, and is currently configured to address operational risk in the daily-to-weekly time scale. The method is applicable to longer time scales (i.e., monthly and seasonally) although historical sample size requirements reduce the number of weather types extracted, and reliable long-lead forecasts are required to take advantage of the risk forecasting capabilities.
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