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. 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.
