Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79581
Authors: 
Ritter, Matthias
Year of Publication: 
2012
Series/Report no.: 
SFB 649 Discussion Paper 2012-067
Abstract: 
Many companies depend on weather conditions, so they require reliable weather forecasts for production planning or risk hedging. In this article, we propose a new way of gaining weather forecasts by exploiting the forward-looking information included in the market prices of weather derivatives traded at the Chicago Mercantile Exchange (CME). For this purpose, the CME futures prices of two monthly temperature indices relevant for the energy sector are compared with index forecasts derived from meteorological temperature forecasts. It turns out that the market prices generally outperform the meteorological forecasts in predicting the outcome of the monthly index. Hence, companies whose profit strongly depends on these indices, such as energy companies, can profit from this additional information source about future weather.
Subjects: 
Weather derivatives
weather forecasts
CME
energy sector
JEL: 
G15
G17
Q41
Q47
Document Type: 
Working Paper

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