Weather Future

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Weather Future

A weather derivative in which the buyer is required to pay the seller $20 for each day in a given month that the daily temperature is below 65 degrees (a heating degree day) or above 65 degrees (a cooling degree day), depending on the nature of the contract. A weather future allows a business to hedge against potential losses resulting from an unexpected change in weather. Energy companies are the most common sellers of weather futures; they have become relatively popular investments.
References in periodicals archive ?
The market allowed the utilities to sell weather futures to investors.
After Enron pancaked, weather futures stayed around--still mostly for utilities and farms--but buying them wasn't easy: You had to personally contact one of the few weather-futures traders who'd set up their own trading desks in the wake of Enron's dissolution.
It then uses that guess to instantly price a weather future or insurance contract.
Then in 1999, the Chicago Mercantile Exchange (CME) started to trade weather futures contracts, spurring the expansion of this nascent sector.
while the hedger using linear basis hedging (hedging using the combination of exchange traded weather futures and OTC basis weather forwards) has a final wealth given by
From the same people who run weather futures trading, the hurricane futures market could prove to be a viable tool for reinsurers.
Weather futures made their debut Wednesday on the Chicago Mercantile Exchange, enabling investors to speculate on what the temperature is going to be in four U.
Weather Forecasting Using Weather Futures Presented by:Ben Smith, President, First Enercast Financial
Later in the same year, the London International Financial Futures Exchange introduced weather futures that now allow Europeans to hedge against their respective weather conditions.
This capacity increased the open interest on the Chicago Mercantile Exchange (CME) by 588%, the largest-ever volume for a specific weather futures contract in any one city on a given day.
He was there when the CME was growing the weather derivative market in its early years; he's launched three different types of weather indices and he has been one of the central figures in the growth of the weather futures market," said David Riker, President and CEO of Storm Exchange.
According to the report, the Department of Commerce in May of 2000 recognized a portion of this danger and issued a memo prohibiting NWS employees from investing in weather futures or weather derivatives.