Wednesday, August 1, 2007

Weather Derivatives-"Hedge Funds Pluck Money From Air in $19 Billion Weather Gamble"

Credit Suisse Group trader Patrick Ayash rarely reads earnings estimates and just skims news about inflation. One thing he never misses: the daily weather report.

Ayash, 31, is part of an army of mathematicians, hedge-fund whizzes and programmers pouring into the $19 billion market for weather futures, financial instruments tied to everything from storms over Kansas, an early frost in the Netherlands, or a frigid spring in New York.

...Enron Corp. sold the first weather derivative 10 years ago, agreeing to pay a utility $10,000 for each wintertime degree that was below normal. After a lull following the collapse of the Houston energy trader, the market is exploding. Trading in weather contracts has jumped 100-fold in the past four years, according to the Chicago Mercantile Exchange....

You may have picked up on our fascination with all things Enron. There are two reasons. First it was a really big fraud. Regular readers know we are suckers for a good fraud story.
Second, so much of the alt-energy, Kyoto politics, cap-and-trade etc., etc. has some tie to ENE.

From Bloomberg
Tandem or dual hat tips:'s MarketBeat for pointing us to to Infectious Greed.
(I know it's on our blogroll, I hadn't gotten there yet, sorry)