History of Weather derivative in Timeline

Weather derivatives are financial tools used for risk management against adverse weather. They are index-based, using weather data from stations to create indices that trigger payouts. Examples include rainfall indices for hydro-generation and temperature indices for frost damage protection in agriculture. These derivatives allow businesses and individuals to hedge against financial losses caused by unexpected or extreme weather conditions.

July 1996: First weather derivative deal

In July 1996, Aquila Energy structured the first weather derivative deal, a dual-commodity hedge for Consolidated Edison (ConEd). The transaction involved ConEd's purchase of electric power from Aquila for the month of August, with a weather clause stipulating that 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 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. The CME currently lists weather derivative contracts for various cities and also offers products tracking snowfall, rainfall, and hurricane activity.

2014: Online weather derivative exchange creation

In 2014, an online weather derivative exchange named Massive Rainfall was created to bet or hedge on specific weather conditions. However, it seems to serve primarily as an educational tool for practice accounts.