Boston-based Air updates weather data

The update provides weather derivatives traders with data, from 1950, that accounts for station shifts and station environmental changes that impact historical weather observations.

“Sensors at weather stations are often shifted, which can lead to variations in observations. A weather derivatives contract may be written and based on the temperature at a station with 25 years of historical data," said Mark Gibbas, Air’s senior research meteorologist. If, however, five years ago, that station moved its sensors to a cooler location, the result would be five years of cooler observations and 20 years of warmer observations.

“By using the full 25 years of inconsistent data, the estimate will be biased towards the earlier warmer observations," said Gibbas. "The historical data will not be representative of estimated future observations, resulting in a flawed derivatives contract. Air solves this problem by reconstructing the data to represent accurate historical weather observations regardless of station changes.”

Air’s major competitor, California-based Risk Management Solutions (RMS), is also working on data sets that take station shifts into account.

Weather risk data companies, including Air, RMS, Pennsylvania-based AccuWeather and Virginia-based Weather Ventures, are all vying for business, particularly in the US, promoting and updating their services to entice clients to purchase data sets.

But Jan Dutton, Weather Ventures' principal and professor of meteorology at Pennsylvania State University, said new data products do not magically attract new business. “What this market needs more than anything else is to bring end-users to market," said Dutton. "Everyone with a stake in the market should be focused on this goal. At this stage, the market markers have the necessary tools to intelligently offer weather risk management contracts. What the market needs is end-user education and awareness necessary to drive the market to significant, continued growth.”