Why Haven't Weather Derivatives Been More Successful as Futures Contracts? A Case Study

9 Pages Posted: 15 May 2015

See all articles by Hilary Till

Hilary Till

Premia Research LLC; EDHEC-Risk Institute; J.P. Morgan Center for Commodities, University of Colorado Denver Business School; Global Commodities Applied Research Digest

Date Written: December 1, 2014

Abstract

Why have some seemingly promising futures contracts not succeeded in the recent past? In this paper, we will examine one such example, the weather derivatives market. In two companion working papers, we will also analyze two other futures market failures: namely, in the pulp market and in the uranium market.

The structure of this paper is as follows. First we provide a brief history of weather derivatives contracts as well as a description of these contracts. Next we review customized over-the-counter (OTC) weather derivatives contracts, as provided by reinsurers, and then we review why futures contracts are not as successful a method of risk transfer. Lastly we describe how weather exposures do not sufficiently match up against the criteria for the successful launch of a futures contract.

Keywords: Futures, weather derivatives, risk, speculator

JEL Classification: G1

Suggested Citation

Till, Hilary, Why Haven't Weather Derivatives Been More Successful as Futures Contracts? A Case Study (December 1, 2014). Available at SSRN: https://ssrn.com/abstract=2606054 or http://dx.doi.org/10.2139/ssrn.2606054

Hilary Till (Contact Author)

Premia Research LLC ( email )

United States
312-583-1137 (Phone)
312-873-3914 (Fax)

HOME PAGE: http://customindices.spindices.com/custom-index-calculations/premia/all

EDHEC-Risk Institute

Nice
France

HOME PAGE: http://risk.edhec.edu/

J.P. Morgan Center for Commodities, University of Colorado Denver Business School ( email )

1475 Lawrence St.
Denver, CO 80202
United States

HOME PAGE: http://www.business.ucdenver.edu/commodities

Global Commodities Applied Research Digest ( email )

J.P. Morgan Center for Commodities
1475 Lawrence Street
Denver, CO 80202
United States

HOME PAGE: http://www.jpmcc-gcard.com/hilary-till

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