New UBS index predicts weather

UBS AG today launched a global warming index based on weather futures for 15 U.S. cities that is being traded on the Chicago Mercantile Exchange.
The UBS-Global Warming Index (UBS-GWI), compares the average daily temperatures of 15 U.S. cities against a given base, and will eventually be extended to include cities from Asia and Europe.
It is constructed using liquid, actively traded Heating Degree Day and Cooling Degree Day weather futures contracts and provides a “rational and simple way” to obtain exposure to the weather asset class, Zurich, Switzerland-based UBS said in a statement.
The UBS-GWI Governance committee will meet annually to determine the composition and the weighting of the index and its sub-indices family, which is currently composed of four U.S. regions or sub-indices: Northeast, Midwest, West and South.
To be eligible for inclusion, the volume of futures traded for any given city must represent 1% or more of the total weather derivatives contracts traded on the CME.
“Weather derivatives volumes have increased dramatically over the course of the last few years yet they remain an untouched asset class for the vast majority of the financial community,” said Ilija Murisic, executive director, Hybrid Derivatives Trading at UBS, in a statement.