Among
the significant areas emerging in derivative technology is the
rapidly growing area of managing risks resulting from weather.
This exciting concept offers protection against uncertain
costs/revenues resulting not on price changes but on fluctuations in
volumes.
Hedgers are compensated against unfavorable moves in
temperatures, precipitation, water flow, even humidity and
pollution, that determine the physical volumes transacted.
This area opens a dimension to risk management not previously
available to business managers.
The Program
A
business entity’s economic exposure to weather must first be
identified.
The program starts with exposure identification and
quantification.
It then explores alternative weather hedge structures that
best address the business’ exposure, including fixed-price swaps,
put and call options.
Calculating and quoting conventions for this new market are
explained. Pricing concepts for these products are unique to
weather, differing significantly from the conceptual approaches
applied commonly in energy commodities.
These various approaches to pricing weather are compared and
their implications analyzed.
The Practical
The
wide acceptance of weather hedging places the need for energy industry
professionals to acquaint themselves with this new technology. Paradigm’s
program is oriented to providing industry professionals with a thorough, but
still pragmatic, training session in the workings of this new and exciting
technology.
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At the
conclusion of this program participants will be able to:
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Understand
how weather influences the economics
of energy and non-energy businesses
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Quantify
weather exposure to structure a tailored hedge
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Manage
volumetric risk using weather hedging
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Use the
common conventions for measuring weather indices
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Calculate
Heating Degree Days and Cooling Degree Days from National Weather
Service data
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Compare
and contrast methodologies for pricing weather derivatives
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Analyze
the effectiveness of using 30-year NWS ‘Normals’ in pricing
weather transactions
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Quote
option premiums quoted in weather units (e.g. HDDs, inches of
rainfall, etc.)
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Establish
payout limits for weather structures and understand their impact on
pricing
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Differentiate
option pricing concepts for weather from conventional option theory
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Attain a
fluency in weather hedging that will facilitate problem-solving and
creative
deal structuring
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