UBS to launch first Global Warming index says the FT (just next to an advert about high net worth individuals designed to annoy scientists…).
Its not perfectly clear what its doing (I’m hoping James will investigate!). They say
Retail and institutional investors will also be able to buy exposure to, or short sell, the index in much the same way they would with the FTSE or Dow Jones stock indices. If temperatures rise, so will the value of the index. Ilija Murisic, executive director of hybrid derivatives trading at UBS, said the impact of global warming had brought explosive growth in the weather derivatives market. A recent report from PwC said the volume of weather derivatives traded on the Chicago Mercantile Exchange jumped from $9.7bn in 2004-5 to more than $45bn in 2005-6. “Global warming has created much more volatility in temperatures and weather conditions, which has led to increased liquidity in the weather derivatives market,” Mr Murisic said. “The weather derivatives market is very segmented and quite arcane but has good liquidity. We want to create an index where people can simply invest, like they can with a stock index.” The index is based on weather derivative contracts for winter and summer traded on the CME. These “heating degree day” and “cooling degree day” contracts measure the difference between average daily temperatures and a given base in a number of cities around the world.
Now if they are seriously basing this on the GW/instability stuff, then there is misinformation in there that could be exploited to make fortunes! But I rather doubt that its really the case – probably just something fun to tell the press. Over to you, James.