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Achi news desk-
Marty Malinow’s mother could never understand what her son did for a living. She told her friends that he was “A stockbroker It’s doing something with the weather.” Malinov couldn’t really resist—he knew most people didn’t have a clue Financial contracts Based on things like rains and wind.
This is starting to change. on the background of an increase Climate volatility and social transformations, demand for Weather derivatives Average trading volumes of listed products jumped more than 260% in 2023, according to CME Group, where the number of contracts now standing is 48% higher than a year ago. And this traded corner can only account for 10% of all activity, according to industry estimates; Outstanding derivatives may be worth up to $25 billion based on notional value.
“There’s a lot more trajectory for our business right now,” says Malinow, the founder and CEO of the Parameter Climate consulting firm. “The increased fragility from direct weather volatility, supply chain issues, inflation, geopolitics. That means the weather can eat up a bigger part of the bottom line now.”
Wall Street’s more familiar weather bets, catastrophe bonds, are also riding high after a year of huge returns. But this boom is happening in derivatives, which provide a different kind of hedge: protection against less severe but more common meteorological threats. While a cat fee might pay off if a 100-year storm rips through a community, a weather derivative can compensate a tourism business if there are too many rainy days, or a farmer if a hot summer stresses his crops.
Part of the surge in demand is being driven by corporations that have recently been dealing with their exposure to the elements. In some cases, this is because their operations have already been affected, in other cases because they are responding to pressure from investors and consumers. In many jurisdictions, regulators are beginning to force companies to quantify how much weather threatens their business. Most large and listed European companies are required to disclose what they see as risks and opportunities from environmental factors.
This is starting to change. on the background of an increase Climate volatility and social transformations, demand for Weather derivatives Average trading volumes of listed products jumped more than 260% in 2023, according to CME Group, where the number of contracts now standing is 48% higher than a year ago. And this traded corner can only account for 10% of all activity, according to industry estimates; Outstanding derivatives may be worth up to $25 billion based on notional value.
“There’s a lot more trajectory for our business right now,” says Malinow, the founder and CEO of the Parameter Climate consulting firm. “The increased fragility from direct weather volatility, supply chain issues, inflation, geopolitics. That means the weather can eat up a bigger part of the bottom line now.”
Wall Street’s more familiar weather bets, catastrophe bonds, are also riding high after a year of huge returns. But this boom is happening in derivatives, which provide a different kind of hedge: protection against less severe but more common meteorological threats. While a cat fee might pay off if a 100-year storm rips through a community, a weather derivative can compensate a tourism business if there are too many rainy days, or a farmer if a hot summer stresses his crops.
Part of the surge in demand is being driven by corporations that have recently been dealing with their exposure to the elements. In some cases, this is because their operations have already been affected, in other cases because they are responding to pressure from investors and consumers. In many jurisdictions, regulators are beginning to force companies to quantify how much weather threatens their business. Most large and listed European companies are required to disclose what they see as risks and opportunities from environmental factors.
