Weather Derivatives Desk
Amid the increasing volatility of global climate, TP ICAP's Global Weather Derivatives Desk stands at the forefront of financial innovation, transforming how an ever-greater range of businesses manage their exposure to the risks posed by volatile weather patterns.
Finding liquidity, managing risk
Specialising in offering tailored financial products to hedge against weather-related risks, the desk leverages TP ICAP's robust market infrastructure and expertise to provide clients with innovative solutions to manage the financial impact of weather variability. These products include futures, options, and swaps linked to weather indices, enabling businesses from a growing number of sectors like agriculture, energy, and insurance to mitigate losses from adverse weather conditions.
By facilitating liquidity and transparency in the weather derivatives market, TP ICAP plays a crucial role in helping clients protect revenues and optimise risk management strategies. As the world’s leading Energy broker, we have significant insight into the challenges our clients face and an ability to connect them into the world’s largest liquidity pool.
Weather derivatives explained
Weather derivatives are financial instruments that businesses use to hedge against the financial impact of weather variability. These derivatives are linked to weather indices, such as temperature, precipitation, or wind speed, rather than traditional market prices like commodities or stocks. The basic principle involves creating a contract based on specific weather conditions occurring over a defined period.
For example, an energy company might purchase a weather derivative to protect against the financial losses associated with an unusually warm winter, which would reduce the demand for heating. If the actual weather conditions match those specified in the contract, the buyer receives a payout that offsets the financial impact of the adverse weather.
Weather derivatives can take the form of futures, options, or swaps. In a swap, two parties might agree to exchange cash flows based on actual versus expected weather outcomes. These instruments are crucial for sectors like agriculture, energy, and insurance, providing a vital tool for managing weather-related financial risks.
Products range from the entirely bespoke to a simple vanilla swap, all index linked and financially settled using robust third party data. Most products are primarily bilaterally traded but there are also 18 clearable CME temperature contracts.
Products
CME cleared weather derivatives
Clearable HDD, CDD, CAT contracts based in 18 major cities (13 in the US, 4 in Europe and one in Asia) trading seasonally and monthly.OTC Weather Structures
Customisable structures with specialised terms based on a measurable weather variable - Temperature Rainfall, Wind, Solar Radiation.OTC Quanto Weather Contingent Structures
Customisable structures based on a weather variable crossing a specified strike value triggering a clearable commodity.
How weather derivatives hedge against nature's unpredictability
TP ICAP's Global Weather Derivatives Desk offers financial products like futures, options, and swaps to help businesses manage risks from unpredictable weather patterns. These financial instruments allow businesses to hedge against the risks posed by volatile weather patterns, transforming nature’s unpredictability into a strategic advantage.
Meet the Team
Kellee has been trading in energy markets since the mid-1990s, leading the Australian and NZ Energy desks at ICAP since 2017. In 2023, she became global head of weather derivatives, advocating for weather products in risk management and encouraging women in financial markets.
With nearly 25 years at TP ICAP, Tim has excelled in the financial industry, leading teams in Singapore and driving growth. Now focused on weather derivatives, he brings a dynamic approach. A cancer survivor, Tim inspires with resilience and cherishes family time.
With over 30 years in derivatives financial and commodity markets, Felix has led CME's Alternative Investments, launched the Case-Shiller Housing Indexes, and built CMEG's global weather futures business. A US Army veteran, he is also a Zen priest and a certified UHP coach.
