The International Status of Weather Futures
Since 1997, weather futures have been officially traded on the Chicago Mercantile Exchange, including American weather futures, European weather futures and Asia-Pacific weather futures.
The first products traded on the Chicago Mercantile Exchange are "Time required for heating up (HDDS)" and "Time required for cooling down (CDDS)". Temperature, sunshine hours and millimeter rainfall can all be the price indexes of meteorological financial markets. The Chicago Weather Futures Exchange has been approved by the Commodity Futures Trading Commission of the United States, and will conduct futures trading of air pollutants, and will start futures trading of air pollutant quotas, followed by options trading.
The London International Financial Futures Exchange also launched weather futures trading on 200 1. The weather futures contracts launched by the Exchange are settled and delivered according to the monthly and winter indexes of the Exchange. The index is calculated according to the daily average temperature in London, Paris and Berlin.
Now, after sweeping the United States, Europe and other places, the upsurge of investment weather has hit Asia again. The Tokyo International Financial Futures Exchange will start trading weather futures contracts in the spring, and the price will be calculated according to the historical monthly average temperature of four major cities in Japan. Tokyo Marine Insurance Company promotes typhoon futures contracts to the entertainment industry to prevent its activities from being damaged by the storm. Japan Damage Insurance Company also sells rain futures contracts to golf clubs and snow contracts to ski resorts and tire industries. Sumitomo Mitsui Insurance also has sunshine futures contracts for beverage companies, whose sales will drop in rainy days. CME began trading weather index futures from 1999, which is the first temperature-related weather derivative. After the start of weather index futures trading, the liquidity of weather futures contracts is enhanced, and the standardization of contracts makes prices more transparent, so traders can better offset risks and obtain additional income.
CME's weather index futures are very important to American energy companies. First of all, the weather risk management tools traded on exchanges do not have credit problems that may occur in the OTC market. In the OTC market, when energy enterprises go bankrupt or get into trouble, OTC contracts face great credit risk, and CME clearing bank has extremely high credit guarantee, which can reduce the credit risk faced by transactions. Secondly, in improving the liquidity of weather futures trading, CME facilitates the transactions between buyers and sellers through market makers, making it more convenient for enterprises to enter and leave the market. Wolverine Trading, L.P. (Wolverine) is the first market maker of CME weather futures. Finally, the weather futures traded on the exchange provide a reference mechanism for both parties to the off-exchange weather risk transaction. However, enterprises should consider two issues when participating in CME weather futures trading: first, if the weather risks that energy enterprises need to guard against are not listed on CME, then enterprises still face the risk of inconsistent weather conditions caused by regional differences; Second, enterprises that conduct futures trading in CME must have considerable financial ability and the level and experience of trading on the exchange.
CME's weather index futures include heating day index futures, cooling day index futures, cooling season index futures and heating season index futures. Although CME weather index futures have not been produced for a long time, they have developed rapidly. From June to June, 2003, the trading volume reached 7796 lots, while in the same period of 2002, the trading volume was less than 1000 lots, which was the fastest growing variety among all CME trading varieties.
Daily temperature index
The temperature index is a measure of the deviation between the average temperature of a day and 65 degrees Fahrenheit (equivalent to 18.3 degrees Celsius). The daily average temperature is the average of the daily maximum temperature and the midnight to midnight minimum temperature. The industrial starting temperature of 65 degrees Fahrenheit usually appears in the technical standards of heating, ventilation and air conditioning. This temperature is used to assume that when the temperature is below 65 degrees Fahrenheit, consumers will use more energy to keep the room warm, and when the temperature is above 65 degrees Fahrenheit, they will use more energy to run the air conditioner to cool down. The temperature index of CME includes heating day index (HDD) and cooling day index (CDD), and the temperature is urban temperature. There are two standards for cities, one is that cities have high population density, and the other is that cities are energy centers.
The heating daily index (HDD) measures the degree of cold by comparing the average daily temperature with 65 degrees Fahrenheit, which is the index that needs heating. HDD= maximum (0.65 degrees Fahrenheit-average daily temperature). If the average daily temperature is 40 degrees Fahrenheit, the daily HDD is 25, and if the average daily temperature is 67 degrees Fahrenheit, the daily HDD is 0. The HDD index of CME is the accumulation of daily HDD indexes for one month, and each index point is $ 100 on the final settlement date. For example, suppose that the average daily HDD of a city in June165438+1October is 25 (65 degrees Fahrenheit-40 degrees Fahrenheit), and the HDD index in June165438+1October is 750(25 days HDD×30
The refrigeration daily index (CDD) measures the warmth by comparing the daily average temperature with 65 degrees Fahrenheit, that is, the index that needs to run the air conditioner to cool down. CDD= maximum (0, average daily temperature -65 degrees Fahrenheit). Like HDD, if the average daily temperature is 75 degrees Fahrenheit, the daily CDD is 10, and if the average daily temperature is 58 degrees Fahrenheit, the daily CDD is 0.
Daily warming index futures and daily cooling index futures.
Heating daily index futures (HDD) and cooling daily index futures (CDD). CME's HDD and CDD futures contract is a legal agreement to buy and sell the index value of HDD and CDD on the specified futures trading day, and HDD and CDD are delivered in cash. CME selected the temperatures of ten cities as the trading objects, namely Atlanta, Chicago, Cincinnati, new york, Dallas, Philadelphia, Portland, Tucson, Main and Las Vegas. Each city is represented by a different symbol. For example, H2HDD represents the daily heating temperature index of Chicago.
(1) contract specifications
The nominal value of CME's HDD and CDD futures contracts is 100 times that of HDD or CDD index, and the contracts are quoted at HDD/CDD index points. For example, if the HDD index is 750, the nominal value of the futures contract is 75,000 USD (750HDD× 100 USD). The minimum price fluctuation is 1.00HDD or CDD index point, and the value is 100 USD. Suppose the trader sells the Chicago 19991kloc-0/October HDD futures contract at the 750 index point on September1999, and buys and closes the position at the 625 index point on June 10+0 1 day, then the trader obtains.
(2) Contract month
At any trading time, there are 7 consecutive HDD and CDD futures contracts and 5 consecutive HDD and CDD option contracts listed and traded respectively. For example, on September 15, 2006, the expiration months of seven consecutive HDD futures contracts extended from April 5438+00, 2006 to April 2002, and the contract months of seven consecutive CDD futures contracts extended from April 2002 to June 10. In the OTC market, the contract month of HDD is usually 10 to March, and the contract month of CDD is May to August. April and September are regarded as two-way months.
(3) Settlement
The settlement price of the monthly contract is based on HDD and CDD indexes calculated by Earth Satellite Co., Ltd. ..
(4) trading system
HDD and CDD futures use CME's GLOBEX electronic trading system for all-day (24-hour) trading.
(5) Source of data
Earth satellite company limited. Earth Satellite Co., Ltd. is a global professional service company that develops remote sensing equipment and provides geographic information, which can provide daily and hourly temperature information. The company is a world leader in providing climate information for agriculture and energy markets. The temperature of the city selected by CME is measured by an automatic data collection device, namely Automatic Ground Observation System (ASOS). The daily maximum and minimum temperatures measured by the system are directly transmitted to the National Climate Data Center (NCDC), which is a subordinate department of the National Oceanic and Atmospheric Administration. When ASOS system fails or transmission is blocked, Earth Satellite Co., Ltd. will conduct quality control in time and provide alternative data.
Seasonal weather futures contract
CME began trading seasonal weather products on May 26th, 2003 after launching daily temperature index futures. Seasonal weather index futures is an extension of daily temperature index futures based on heating daily index and cooling daily index, including cooling seasonal index futures (SCDD) and heating seasonal index futures (SHDD). The term of seasonal weather futures is 5 months, the summer contract is from May to September, and the winter contract is 1 1 to March. The selected cities are Chicago, Cincinnati and new york. This product is traded through GLOBEX electronic trading platform. Seasonal contracts can enable traders to trade the temperature index of the whole season at one price, without having to trade the monthly contracts separately, thus improving the trading efficiency and reducing the trading cost of traders. Euronext.liffe weather futures (London international financial futures options trading) contract was launched in July, 20001year, which was designed according to the monthly average temperature and winter average daily temperature (DAT) in three European regions (London, Paris and Berlin). Users who use Euronext.liffe weather futures contracts to resolve weather risks include: energy companies whose supply and demand are highly related to weather changes; Insurance and reinsurance companies that need to diversify their portfolio risks; Retail enterprises whose customers' buying behavior is affected by weather changes; Agricultural producers, operators of agricultural products, food manufacturers and traders of agricultural products, climate change will affect crop yield, export and price.
daily mean temperature
The weather market in Europe is different from that in America. The main feature of the American market is strong seasonal demand, that is, warm in winter and cool in summer. Therefore, taking heating day and cooling day (usually 65 degrees Fahrenheit) as trading objects, American energy enterprises first created this market, and the demand of these enterprises further evolved this market. There is no corresponding cooling demand in summer in Europe, so different methods are needed to trade the weather index in the European market. Euronext.liffe chose the daily average temperature and the winter temperature index as the targets, both of which are traded in the OTC market, so this choice is relatively simple and direct, which can cater to a wider range of needs.
Monthly index
Mi =100+mean (DAT) 1, n, where n= the number of days in a month, DTA is the arithmetic average (degrees Celsius) of the highest temperature (Tmax) and the lowest temperature (Tmin) in a day, and DTA in each region is published daily through the weather website of Euronext.liffe, meaning (. N is the arithmetic average of the daily average temperature of the month, and this value is added with 10. If the monthly average temperature is 7.2 1 Celsius, the monthly index is 107.5438+0.
Winter index
WSI = 100+ mean (DAT) 1, n, where n= winter days, and the winter period is 1 1 in October to 3 1 in March of the following year.
Euronext's weather futures contracts are settled in cash. When each contract expires, Euronext.liffe will calculate the final closing price (that is, the settlement price of EDSP exchange) according to the monthly index or the winter index.
Futures trading contract
Euronext.liffe's weather futures contracts include monthly index contracts and winter index contracts, and the temperature is in three different regions of Europe. So there are three-month index contracts in the same month, namely London MI, Paris MI and Berlin MI.
Monthly index contract
(1) contract specifications
Euronext.liffe monthly index contract and winter index contract are denominated in degrees Celsius, and one degree Celsius is 3,000 pounds/euro (the temperature in London is denominated in pounds, and the temperature in Paris and Berlin is denominated in euros).
(2) Contract month
The contract month of monthly index contract includes the whole year 12 months, and the contract month of winter index contract is 1 1 month to March of the following year.
(3) Minimum fluctuation
The minimum fluctuation is 0.0 1 celsius, which is equivalent to 30 pounds/euro.
(4) Settlement
The settlement price (EDSP) of each contract month is calculated on the last natural day of the relevant delivery month according to the monthly index value and the seasonal index value, and the temperatures in the three regions are provided by the meteorological administrative department of the host country respectively. The settlement of the transaction is special. The announcement date of settlement price and the settlement date are two adjacent days. Due to the time difference, the settlement dates in the three regions are different. Among them, the announcement date of settlement price in London and Berlin is the first trading day after the last trading day, and the announcement date of settlement price in Paris is the second trading day after the last trading day, and the settlement date corresponds to the next day.
(5) Trading system
All transactions are conducted through the LIFFE CONNECT system (the system started running in June 1998 1 1), and the trading time is 10: 00- 17: 00.