CME Group has acquired the Carvill Hurricane Index from Carvill America Inc. and renamed it the CME Hurricane Index.
The exchange has also signed a Memorandum of Understanding with EQECAT, an extreme-risk modeling company, to be the new calculation agent for the index.
CME's hurricane futures and options will be listed with, and subject to, the rules and regulations of CME. They will be settled to the CME Hurricane Index (CHI), which provides a numerical measure of the destructive potential of a hurricane. This is based on EQECAT's calculation of the maximum wind velocity and size (radius) of each official storm, showing the potential for physical and financial damage. The higher the CHI number, the more potentially damaging the hurricane.
Felix Carabello, director of alternative investment products at CME Group, said: "We continue to be encouraged by the growth of the weather derivatives market, especially hurricane futures and options, which already have traded 4,000 contracts before the start of this year's hurricane season."
"EQECAT is very excited about supporting the CME as calculation agent for its Hurricane Index," added Dennis Kuzak, senior vice president of EQECAT. "And with the integration of EQECAT's risk modeling technology, we hope to increase the attractiveness of the CHI by providing superior risk metrics which would assist market participants in pricing and hedging property insurance risk."
In addition to its hurricane products, CME Group offers weather contracts based on aggregate temperatures for 45 cities, including 24 in the US, 10 in Europe, six in Canada, three in Australia and two in Japan. CME Group also lists products used to hedge risk associated with snowfall and frost.
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