An Update on Weather Fear Premia Trades
11 Pages Posted: 21 Dec 2018
Date Written: December 4, 2018
This article reviews a class of trading strategies known as “weather fear premia” trades. It argues that these types of trades may comprise a type of risk premium and notes the extra diligence needed in their risk management. The article notes that both superior trade construction and an analysis of fundamentals are also critical for their successful implementation. It concludes with a cautionary note on a catastrophic trading blow-up that occurred in November 2018, illustrating the risk of such strategies.
Keywords: commodity futures, risk premium, natural gas, coffee, corn
JEL Classification: G1, G11
Suggested Citation: Suggested Citation