SG Plans First Thai Weather Derivative
Société Générale is looking to execute what is believed to be the first weather derivative in Thailand in the coming weeks. In the precipitation option the Thai agricultural conglomerate is hedged against rainfall below a certain level in May and June, according to an official at SG, who declined to give the exact details of the trade. The option provides USD1-2 million of protection for a premium of approximately 10%.
Weather derivatives structurers at rival firms in Tokyo were not aware of any other transactions. One added, "we've also considered this market but you can't be sure of the quality of data in Thailand," he added. In the U.S. and Europe most weather derivatives are referenced to temperature not precipitation, but structurers said precipitation is a greater concern in Thailand because of large fluctuations in rainfall.