BUT IS THERE SNOW IN THE FUTURE?

Chicago Merc to trade snow futures, options (Darrell Hassler and Nandini Sukumar, February 9, 2006, Bloomberg News)

The Chicago Mercantile Exchange, the biggest U.S. futures market, is creating futures and options contracts that pay out based on amount of snow that falls in New York's Central Park and Boston's Logan International Airport.

The Merc, the only exchange to offer weather derivatives, is expanding its range as trading surges in existing contracts linked to the number of frosty days and the temperature in U.S., European and Asian cities.

Weather derivatives trading at the Merc jumped more than sevenfold last year to 889,000 contracts on demand from companies whose fortunes change with the weather. The derivatives might be used by municipal snow removers or energy traders, said Brian O'Hearne, managing director of the environmental and commodity markets for Swiss Reinsurance Co.

``There really is an increasing interdependence of commodity price action and weather action,'' O'Hearne said in an interview from his New York office. He is also president of the Washington- based Weather Risk Management Association, a trade group.

-AUDIO: Snow Futures (Here and Now, February 15, 2006)

Starting later this month, the Chicago Mercantile Exchange (CME) will begin trading snowfall futures. The contracts will rely on how much snow falls at Boston's Logan Airport and New York's Central Park.

According to the CME, snowfall futures could help businesses who are affected by the weather or cities struggling to maintain snow removal costs. Snowfall futures join a growing field of what investors call weather derivatives.

Guests: Felix Carabello, director of alternative investments for the Chicago Mercantile Exchange

Only political hysteria prevented us from using such market mechanisms to determine where we're most vulnerable to terrorism.

Posted by Orrin Judd at February 15, 2006 5:46 PM