International Herald Tribune- Patrick Ayash, a trader at Credit Suisse Group, rarely reads earnings estimates and just skims news about inflation. One thing he never misses: the daily weather report.
Ayash, 31, is part of an army of mathematicians, hedge fund whizzes and programmers pouring into the $19 billion market for weather futures, financial instruments tied to everything from storms over Kansas, an early frost in the Netherlands, or a frigid spring in New York.
The market was once a sideline for utilities looking to insure against swings in demand for natural gas or electricity. Now, with hedge funds increasingly hungry for market-beating returns, more are gambling on untested strategies. Tudor Investment, D.E. Shaw and other funds are turning teams of statisticians loose to devise novel ways of exploiting weather fluctuations.
“There are no 100 percent forecasts, but what if we can say something with 80 percent confidence? That’s where it gets interesting,” said Brad Hoggatt, 35, chief portfolio manager of MSI GuaranteedWeather, which sells weather futures to utilities and manages its own portfolio in Overland Park, Kansas.
Enron sold the first weather derivative 10 years ago, agreeing to pay a utility $10,000 for each wintertime degree that was below normal.
