Sunday, July 24, 2005

Weather derivatives

Interestingly, hedgefund street carried a story on a new hedge fund being launched in the weather derivative space. I have always been fascinated with weather related (commodities and energy) and catastrophe-linked securities, and would like to learn more about this area. The main indices used are HDD (heating degree days) and CDD (cooling degree days) around which most of the contracts are structured, however one can be creative and use any such indice as the underlying.

Most of these contracts are OTC and are very low volume at present. I hope that more and more corporations find value in such instruments and the industry starts to take off.


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