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Water Shortage and Mitigation Solutions: A Focus on New Physical and Financial Hedging Tools

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  • Nicola Bartolini
  • Silvia Romagnoli
  • Amia Santini

Abstract

Climate change, water mismanagement, and overconsumption are intensifying droughts and water shortages worldwide. Beyond health risks, water scarcity threatens food security, disrupts agriculture, and can fuel conflicts—underscoring the need for sustainable water management. This paper proposes a financial strategy using weather derivatives tied to water indexes or variables like rainfall to hedge against volumetric risks. Through a case study of California's water market, and a sensitivity analysis based on climate change scenarios, we show how these tools can mitigate the impact of water scarcity, particularly in agriculture, and help bridge the climate risk insurance gap.

Suggested Citation

  • Nicola Bartolini & Silvia Romagnoli & Amia Santini, 2025. "Water Shortage and Mitigation Solutions: A Focus on New Physical and Financial Hedging Tools," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(10), pages 1491-1511, October.
    • Handle: RePEc:wly:jfutmk:v:45:y:2025:i:10:p:1491-1511
    DOI: 10.1002/fut.70000
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