Climate change has been judged as the greatest risk facing the well-being of people in both developed and developing countries. The problem will probably require large amounts of capital investment, which is most often sought from central governments, and traditional capital pools like banks. The global derivative market, estimated to be in excess of 100 trillion USD, is a possible source of capital to fund climate adaptation efforts. Derivatives are already used to manage risk associated with undesirable weather, and are increasingly being presented as a way to manage risk associated biodiversity conservation and future climate possibilities.

Derivatives can be used for risk management purposes by parties financially exposed to ocean warming like salmon aquaculture farming in Tasmania, Australia, which could see a production decline at temperatures above 18C. We used downscaled climate forecasts of average annual sea surface temperature (SST) in southeastern Tasmania, to calculate the price of two derivatives contracts: an "American" call option and a "European" put option that gives a $100 pay-out at a strike of 18C. The contracts can be used either as an insurance mechanism against warming ocean coastal waters, or as a means to proactively raise capital.

The derivative price we calculate provides risk measure for planners, and a strong incentive to investors who do not believe that higher ocean temperatures will eventuate to enter these transactions with parties interested in managing climate change risks.