Making money from the weather is one of my favorite subjects, whether it’s destination sites, weather futures, data sets, etc. With the preceding in mind, there is a great overview at Bloomberg today of the myriad speciation going on in weather-related financial markets. A must read.
[Credit Suisse Group trader Patrick] Ayash, 31, is part of an army of mathematicians, hedge-fund whizzes and programmers pouring into the $19 billion market for weather futures, financial instruments tied to everything from storms over Kansas, an early frost in the Netherlands, or a frigid spring in New York.
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.
Even though we’re still in relatively early days here, universities are offering new “weather risk management” programs, and financial engineering specializations are right behind them. Better yet, it’s already given meteorologists other career options:
The positions can be lucrative. Rogers, a Penn State graduate, says he heard about one job that promised a possible annual salary of $500,000. Most financial firms pay around $100,000 to $150,000, he says. That’s about double the salaries offered by the National Weather Service.
“For meteorologists, it’s just impressive to have a six- figure salary,” Rogers says.
And here’s an interesting side-benefit question: Will weather forecasts finally get better if the financial stakes rise? My bet is Yes.