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May 30, 2007
Money where your mouth is?
The Chicago Mercantile Exchange (CME)launched a hurricane futures trading product back in March of this year. Forbes Magazine discussed the new hurricane risk management product two days ago. Unfortunately, the contracts only go out a year but perhaps in time they will go out farther. They payout based on joint estimates of frequency and severity, using the Carvill Hurricane Index. It seems this isn't the only way to punt on climate change using CME. They also has contracts that payout based on temperatures for 35 cities, plus snow and frost contracts.
I recall Giblfiz being convinced (after seeing An Inconvenient Truth) that hurricanes were going to become worse and/or more frequent as a result of anthropomorphic climate change. Here is a chance to make a bet based on your belief the climate is changing. Maybe, I guess that depends on the frequencies and severities implied by the contracts. It could be that strong beliefs about climate change are "baked into" today's prices on these contracts. One way to figure that out would be to create synthetic prices by looking at historical weather behavior and calculating the implied actuarially fair prices of those securities. Maybe they would seem relatively expensive.
Posted by OneEyedMan at May 30, 2007 7:23 PM
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