Action, baby, action!
We will be looking for the first reports of the proverbial "dentist from Peoria" (Los Angeles Times, Jan. 21, 1989) stepping up to the betting window.
From the risk-transfer (cat bonds, ILS, et al) mavens at Artemis, October
The weather derivatives market has seen activity levels roughly quadruple this year, as trading in weather futures and options on the Chicago Mercantile Exchange (CME) soared, with the main driver said to be the belief that extreme weather events are set to increase
The desire to hedge the financial effects and impact of weather events is increasing, with buyers of protection seeking to smooth volatility through use of weather derivatives, putting in place hedges that can help them financially offset the effects of inclement, unseasonal and severe weather events.
Reuters has reported on activity at the CME, which remains the main venue for trading in weather derivatives.
The CME sells a wide range of futures and options, linked to heating and cooling degree days, as well as to Cumulative Average Temperature (CAT) Indices.
These are effectively a parametric risk transfer product, where one side is hedging the risk of temperature extremes, or fluctuations that can cause volatility to their businesses.
Weather derivatives can also be customised for wind, solar and other weather variables.
The weather derivative market has been around for longer than catastrophe bonds and there are some players in the insurance-linked securities (ILS) market that provide capacity to the weather derivative market, not least Markel’s ILS manager Nephila Capital....
....MUCH MORE
Here's a previous sighting of the dentist, September 2012:
The Death of Commodities
I'm tempting the fates aren't I.
Well, this blog isn't exactly BusinessWeek 1979 and besides, the Death of Equities cover was actually smart advice for the three years to August 1982.
Anyone in the commods has to have been scared of the long side this week. From the grains collapsing on the hint that corn yields would be a little bit better than the apocalyptic famine scenarios being pitched to the dentist in Peoria trying his hand at corn futures to the 2.2% drop in October platinum on news of the Lonmin settlement to Monday's massive "Holy air pocket, Batman"* selloff in the oil pits** it appears that folks (and 'puters) are so skittish that they dump contracts as if they cause cancer.
So what's going on?There appears to be a lot of physical stuff in the world and producers and merchants know it.
Here's one part of the puzzle, from FT Alphaville's Izabella Kaminska:
Commodity encumbrance and Joseph’s storage play....
As an old insurance bigwig (not Mr. B) once said to me, "These things are for writing, not buying"
Where Did the Gunslinger Prop Traders Go? (some of them ended up at insurance companies)
Weather Derivatives: "How to Insure Against a Rainy Day"
Weather Derivatives-"Hedge Funds Pluck Money From Air in $19 Billion Weather Gamble"
