With the recent launch of the London based I-WeX.com internet site, European corporates accustomed to hedging against Financial risk should be able to manage another great uncertainty - weather - just as American corporates have been able to do since 1997 through weather derivatives.
I-WeX.com, a collaboration between The London International Financial Futures&Options Exchange (LiVe), Intelligent Financial Systems, and WIRE, is an internet site operated on the basis of open access. This means that I-WeX will allow end-users facing weather risks worldwide to post OTC deals where all the details are specified apart from the price. Any OTC weather desk at a bank, insurance company, reinsurer or broker in Europe or elsewhere can then review the list of open deals and make price oVers. The counterparty that posted the deal can then choose the best price.
Weather risk was especially hard felt in the US over the past three winters. In fact, for three consecutive years, meteorological records dating back to the last century were broken. With the US Department of Commerce estimating that nearly $2 trillion of US GDP is weather-dependent, exceptionally high temperatures played havoc with billions of dollars worth of revenues for companies in weather-sensitive sectors such as energy, agriculture, fashion, and tourism.