History of Weather derivative in Timeline
Weather derivatives are financial instruments utilized for managing risks linked to unfavorable weather. They are index-based, relying on weather station data to establish an index determining payouts. Examples include indexes based on total rainfall, relevant to hydro-generation, or the frequency of sub-zero temperatures, important for farmers safeguarding against frost damage. These derivatives allow businesses and individuals to mitigate financial losses caused by adverse weather conditions, serving as a valuable tool for risk mitigation in weather-sensitive industries.
July 1996: First weather derivative deal
In July 1996, Aquila Energy structured the first weather derivative deal with Consolidated Edison (ConEd). The deal involved a dual-commodity hedge where Aquila would pay ConEd a rebate if August turned out to be cooler than expected, based on Cooling Degree Days (CDDs) measured at New York City's Central Park weather station.
1997: Weather derivatives trading begins over-the-counter
In 1997, weather derivatives slowly began trading over-the-counter.
1999: CME introduces weather futures contracts
In 1999, the Chicago Mercantile Exchange (CME) introduced the first exchange-traded weather futures contracts and corresponding options.
2014: Massive Rainfall online weather derivative exchange created
In 2014, an online weather derivative exchange called Massive Rainfall was created, allowing users to bet or hedge on specific weather conditions. However, it appears to be only an educational tool for practice accounts in a non-existent currency.
6/9/2008: Weather Derivatives becoming hot commodities
On June 9, 2008, USA Today Online posted an article titled "Weather Derivatives becoming hot commodities."
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