This week, UBS will launch the first Global Warming index (UBS-GWI), a tradable benchmark for global investments in the weather derivatives market that is created using liquid, actively traded heating degree day (HDD) and cooling degree day (CDD) weather futures contracts, which settle on the difference between the average daily temperature and a given base temperature. Presently, the index will be composed of weather futures contracts of 15 U.S. cities traded on the Chicago Mercantile Exchange. It is anticipated that cities from Europe and Asia will join the index as well.
The UBS-GWI Governance committee plans to meet annually to establish the composition and the weighting of the index and its sub-indexes family, which is composed of four U.S. regions: Northeast, Midwest, West, and South.
“The new Global Warming Index will create a mainstream market in weather investing for the first time, providing a simple way for a broader range of investors to gain exposure to the weather asset class–end users can hedge their exposure to weather and it allows both institutional and private investors to diversify their portfolio with an alternative asset class either directly with the index or through hybrid structured products,” stated Ilija Murisic, executive director, Hybrid Derivatives Trading at UBS, in a statement.