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JamesH83
Topic Author
Posts: 817
Joined: June 25th, 2003, 11:38 pm

Weather Derivatives

Could anyone suggest any good sources of information on the pricing / trading of weather derivatives?

pcerutti
Posts: 290
Joined: July 14th, 2002, 3:00 am
Location: Milano (Italy)

Weather Derivatives

JamesH83
Topic Author
Posts: 817
Joined: June 25th, 2003, 11:38 pm

Weather Derivatives

thanks pcerutii,Just took a look at this paper, which I found very clear.http://www.energyforum.net/downloads/re ... _1.pdfThey fit average daily temperatures around a sinosoidal trend and allow deviations through an Ornstein-Uhlenbeck process.Is this a fairly standard approach?How much more do you think the weather derivatives market will grow?

WilmottBookshop
Posts: 1083
Joined: August 1st, 2002, 2:40 pm

Weather Derivatives

Weather Derivative Valuation: The Meteorological, Statistical, Financial and Mathematical Foundations by Stephen Jewson, Anders Brix and Christine Ziehmann is available through the Wilmott Bookshop.Laura

JamesH83
Topic Author
Posts: 817
Joined: June 25th, 2003, 11:38 pm

Weather Derivatives

That book looks excellent, very recent too. I will take a look at it this afternoon.

Posts: 11048
Joined: February 1st, 2005, 11:21 pm

QuoteOriginally posted by: JamesH83thanks pcerutii,Just took a look at this paper, which I found very clear.http://www.energyforum.net/downloads/re ... _1.pdfThey fit average daily temperatures around a sinosoidal trend and allow deviations through an Ornstein-Uhlenbeck process.Is this a fairly standard approach?How much more do you think the weather derivatives market will grow?And I quote : The US Department of Commerce estimates that nearly 10% of the US's $9 trillion GDP is exposed to weather risk. All over the world providers and end users are recognising this fact and are turning their attention to ways of protecting against or taking advantage of changes in the weather. The market is expected to expand rapidly and is one of the fastest areas of growth in the financial arena. Last edited by TraderJoe on May 8th, 2005, 10:00 pm, edited 1 time in total. JamesH83 Topic Author Posts: 817 Joined: June 25th, 2003, 11:38 pm Weather Derivatives who are the main players in this field? TraderJoe Posts: 11048 Joined: February 1st, 2005, 11:21 pm Weather Derivatives From the client viewpoint I would say farmers (agriculture). JamesH83 Topic Author Posts: 817 Joined: June 25th, 2003, 11:38 pm Weather Derivatives Really? player Posts: 2290 Joined: August 5th, 2002, 10:00 am Weather Derivatives Do you mean buyers or sellers....??Most are OTC contracts so its hard to say exactly who is the main player..I remember a couple of years back some French bank got involved in a £500m Weather derivative seeling it to someone although I cant remember the specific of the deal..As for buyers drinks companies use it more and more now..Marks and Spencers bought one a couple of years.... indeed thats the way some of the sellers hedge their contracts..... JamesH83 Topic Author Posts: 817 Joined: June 25th, 2003, 11:38 pm Weather Derivatives I meant, who are the main market makers and are there any HFs that specialise in them? robertb Posts: 3 Joined: June 14th, 2003, 4:12 pm Weather Derivatives Don't know about the US, but in Europe the trading seems to be done mostly by banks with an energy commodity business, (eg Goldman, ML, DeutscheBank). In terms of customers, outside of energy you do see insurance companies from time to time. I'm not aware of any HF's actually specialising in weather derivatives, but I have seen HF's trade in this market a bit. Again, funds that are trading energy commodities.My personal experience with weather derivatives has been very frustrating from a liquidity standpoint. I've spent hours working through trading ideas based upon the market price for HDDs and then only been able to do about half the volume I had intended (and even that only with our own weather trader keeping the other side of my position on his book for some time.) pisia Posts: 52 Joined: July 14th, 2002, 3:00 am Weather Derivatives QuoteOriginally posted by: TraderJoeQuoteOriginally posted by: JamesH83thanks pcerutii,Just took a look at this paper, which I found very clear.http://www.energyforum.net/downloads/re ... _1.pdfThey fit average daily temperatures around a sinosoidal trend and allow deviations through an Ornstein-Uhlenbeck process.Is this a fairly standard approach?How much more do you think the weather derivatives market will grow?And I quote : The US Department of Commerce estimates that nearly 10% of the US's$9 trillion GDP is exposed to weather risk. All over the world providers and end users are recognising this fact and are turning their attention to ways of protecting against or taking advantage of changes in the weather. The market is expected to expand rapidly and is one of the fastest areas of growth in the financial arena.That's an interesting quote. Just b/c there is exposure does not mean that there is a big market for a specific commodity to be traded. Many other traded commodities are sensitive to weather (power, gas). Consequently, it is not clear, you have to create a new market to replace the proxy hedges. That's the main reason that weather derivatives market has been, is and most likely will be a niche one.The funniest part about the quote is the last sentence: the market has been expected to expand rapidly since 1997. Has not happened for a good reason. Fastest area of growth? Patently false.

tagoma
Posts: 18615
Joined: February 21st, 2010, 12:58 pm

Re: Weather Derivatives

Hi Friends.
Can you kindly point to some online resources on weather risk management - hedging with derivatives vs insurance company services.
I would like to know the main points about it, e.g. how much money involved (I am under the impression that the use of weather derivatives is low as compared to insurance companies services)?  who? etc....
I mean maybe you recently came across such nice report.
Many thanks.
tag

Cuchulainn
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Re: Weather Derivatives

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