Question 7 You own a ski resort in Vail USA called Its AllDownhill. In January you are worried about higher than average temperatures in March, so the snow in March will be much less than usual and less people will come to your ski resort, resulting in less profits. In January, the consensus forecast for the average temperature in March is 20F, but you think that the average temperature will be about 40F. The tick value for weather futures is $100 per F and assume each month has 30 days. a). Explain how you can use weather futures and weather options (on temperature) to hedge this "temperature risk". Do you intend to use weather derivatives on Heating Degree Days HDD or Cooling Degree Days CDD? What is the outcome in March if the temperature turns out to be 40F. b). In principle, explain how you might work out how many weather futures contracts (based on temperature) you might need in January, to hedge any potential loss in profits in March. (12.5 marks)