Worried about too hot weather in Firenze (boy it was damn hot last summer) or about smog in Shanghai. Now you can hedge this risk and go long global warming derivatives index. That way you will make extra buck to pay for doctors to cure sunburn or allergy.
Recent FT article tells a story about UBS launching Greenhouse index, other banks take no time and follow as well. A quote:
“Both retail and institutional investors will be able to buy exposure to, or short sell, the UBS Greenhouse Index in much the same way they would the FTSE or Dow Jones stock market indices.
The level of the index will rise as the price of carbon emissions credits and global temperatures rise”.
Few months ago I asked a question on this blog. What is the next big thing? after the credit markets collapse. Already then the Riskmetrics blog suggested that climate derivatives are coming big time. The same should be expected for catbonds (cat stands for catastrophy not for a home pet) or for any index that goes though the roof (dry cargo???). This is a good thing as new liquid markets (with low correlation to old markets) allow investors to build more efficient portfolios.
Well, now weather forecasting will become more important than Fed inflation projection. Weather presenters looking at you each evening from your TV screen will begin to run hedge funds specializing in true alternatives. Welcome to 21st century finance.