Weather risk in the Economist
Have been catching up on my reading the past few days, not much fun skiing in the rain. (Anybody spending this ski season in the Alps is bound to become a climate change zealot…) Anyhow it was nice to see weather risk legitimized so to speak by the Economist:
WEATHER has toyed with mankind ever since the first caveman blinked into the baking sun. Some of his descendants eventually became insurance underwriters, offering to ease the sting of droughts and storms for a fee. But only recently has the species worked out how to turn nature—with all its vagaries—into a tradable asset in its own right.
As the world’s weather grows more volatile (see article), interest in trading it is likely to grow, too. Hedge funds, in particular, favour three sorts of instruments linked to the changeable climate: weather derivatives, catastrophe bonds and sidecars. All are welcome innovations in risk management as insurance and banking increasingly overlap. And all are in growing demand (see chart).
Nothing new here for regular Park Paradigm readers, but nice to see a good summary in such an esteemed publication (with – ahem – a slightly larger, more mainstream audience!) Too bad however they didn’t mention Weatherbill…
