RMS Offers New ‘Mark-to-Market’ Data and Models for Weather Derivatives

California’s Risk Management Solutions (RMS), announced that it has initiated the daily publication of weather market price data and the release of “mark-to-market functionality in version 3.2 of its Climetrix(TM) weather derivatives trading and risk management system.”

“Together, these developments will facilitate the adoption of mark-to-market risk management practices in the growing weather risk market,” said the bulletin. Mark-to-market concepts “emphasize valuation based on actual market price information and are the standard basis for portfolio risk management in almost all actively traded derivatives markets.”

RMS pointed out that many participants in the weather derivative market rely primarily on models “derived from historical weather data instead of market data due to insufficient trading liquidity.” Now that the market has grown to over $4 billion, “liquidity at key trading locations has reached the point that it is now viable to incorporate mark-to-market techniques into weather portfolio management.”

“RMS’ new pricing data service provides clients with daily updates to market consensus forward curves for 12 key locations in the U.S. and five in Europe. RMS develops the data from a quality-controlled daily survey of leading weather traders who represent a majority of market activity. Among the companies participating in the survey are Accord Trading, Constellation Energy, EKT (Europe), Hess Energy Trading, and Innogy. Seasonal price indexes based on the underlying data for the three most frequently traded locations — Chicago, New York, and London – will be available on http://www.climetrix.com, RMS’ weather risk web site,” said the announcement.