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Hedge Funds Move Into Weather Derivatives |
HenryTo
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 Posted: Wed Aug 01, 2007 12:16 am Post subject: Hedge Funds Move Into Weather Derivatives |
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http://www.bloomberg.com/apps/news?pid=20602012&sid=aK9BWCFSRPnM&refer=corporate_bonds
| Quote: | 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 Corp., D.E. Shaw & Co. 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,'' says Brad Hoggatt, 35, chief portfolio manager of MSI GuaranteedWeather LLC, which sells weather futures to utilities and manages its own portfolio in Overland Park, Kansas.
Enron Corp. sold the first weather derivative 10 years ago, agreeing to pay a utility $10,000 for each wintertime degree that was below normal. After a lull following the collapse of the Houston energy trader, the market is exploding. Trading in weather contracts has jumped 100-fold in the past four years, according to the Chicago Mercantile Exchange.
In the year ended March 31, 2007, the contracts had a notional value, or face value, of $19 billion, according to the Weather Risk Management Association, a trade group in Washington. |
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HenryTo
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nodoodahs
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| Posted: Wed Aug 01, 2007 5:31 am Post subject: |
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I bet you they'll be going broke playing "spreads" before 2008 is done.
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