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Deutsche
Bank is marketing what is believed to be the first weather
derivatives product to its retail clients. In the certificates,
priced at EUR100 (USD87) a shot, investors receive EUR108
if the average temperature between June 1 and Aug. 31 is
over 20.3ûC in Frankfurt. Investors get EUR98 back if the
temperature is below 20.3ûC, according to Akos Zold, v.p.
in structured products in London. The note, dubbed Hot and
Happy Summer, is structured by purchasing a six-month zero-coupon
bond and a three-month binary temperature option, according
to Zold. The two products have different maturities because
the maturity on the bond had to be at least six-months in
order to leave enough money to pay for the option.
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Zold said
it has priced the product on the basis of selling EUR25
million. It decided to launch the product now because its
weather derivatives desk has started trading and there is
demand for products which are not correlated to the equity
markets, Zold said. He added that, if successful, the product
can be used to reduce risk limits on its weather derivatives
book as retail investors can take the other side of the
risk. For example, companies such as breweries want protection
against falling profits due to a cold summer and the retail
clients, who have no natural exposure, are happy to punt
on the summer being hot.
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