System, method, and computer program product for valuating weather-based financial instruments

• US 6,418,417 B1
• Filed: 10/08/1998
• Issued: 07/09/2002
• Est. Priority Date: 10/08/1998
• Status: Expired due to Term

• Current Assignee: Planalytics, Inc.
• Original Assignee: Strategic Weather Services
• Inventors: Corby, Paul M., Fox, Frederic D.
• Primary Examiner(s): Miller, V.
• Assistant Examiner(s): PATEL, JAGDISH
• Application Number:
  US09/168,276
• Time in Patent Office: 1,370 Days
• Field of Search: 705/35, 705/36, 705/37
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A system and method for valuating weather-based financial instruments including weather futures, options, swaps, and the like. The system includes weather forecast, weather history, and financial databases. Also included in the system is a central processing trading server that is accessible via a plurality of internal and external workstations. The workstations provide a graphical user interface for users to enter a series of inputs and receive information (i.e., output) concerning a financial instrument. The method involves collecting the series of inputs—start date, maturity date, geographic location(s), risk-free rate, and base weather condition—affecting the value of the financial instrument and applying a pricing model modified to account for weather.

Claims

1. A computer implemented method for valuating a weather-based financial instrument, comprising the steps of:

(1) receiving information representative of a start date and maturity date for the financial instrument;

(2) receiving information representative of a geographic region to be covered by the financial instrument;

(3) receiving information representative of a weather condition that the financial instrument will derive its value from;

(4) receiving information representative of a risk-free rate;

(5) receiving historical weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date;

(6) receiving future weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date; and

(7) obtaining a value of the financial instrument by applying a pricing model using said historical weather information, said future weather information, and said risk-free rate.

2. The method of claim 1, wherein said pricing model is the Black-Scholes pricing model.

3. The method of claim 2, wherein said weather condition is a heating degree-day.

4. The method of claim 2, wherein said weather condition is a cooling degree-day.

5. The method of claim 2, wherein said weather-based financial instrument is a call option contract.

6. The method of claim 2, wherein said weather-based financial instrument is a put option contract.

7. The method of claim 2, wherein said weather-based financial instrument is a futures contract.

8. A computer implemented method for valuating a financial instrument related to weather, comprising the steps of:

(1) obtaining historical weather information and predicted future weather information; and

(2) obtaining the value of the financial instrument by applying a pricing model using at least said historical weather information and said predicted future weather information.

9. A computer implemented method for valuating a financial instrument related to weather, comprising the steps of:

(1) receiving information representative of an applicable period;

(2) receiving information representative of a geographic region;

(3) receiving information representative of an interest rate;

(4) receiving historical weather information for said geographic region during the applicable period;

(5) receiving future weather information for said geographic region during the applicable period; and

(6) obtaining a value of the financial instrument from a pricing model using at least said historical weather information, said future weather information, and said interest rate.

10. A computer implemented method for determining the volatility of a weather-based financial instrument, comprising the steps of:

(1) receiving information representative of a start date and maturity date for the financial instrument;

(2) receiving information representative of a geographic region to be covered by the financial instrument;

(3) receiving information representative of a weather condition that the financial instrument will derive its value from;

(4) receiving information representative of a risk-free rate;

(5) receiving historical weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date;

(6) receiving information representative of a cost of the financial instrument;

(7) receiving future weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date; and

(8) obtaining the volatility of the financial instrument from a pricing model using said historical weather information, said future weather information, said risk-free rate, and said cost.

11. A system for valuating a weather-based financial instrument, comprising:

a weather history database that stores historical weather information for at least one geographic location;

a weather forecast database that stores future weather information for at least said one geographic location;

at least one workstation that allows a user to specify inputs that affect the value of the financial instrument; and

at least one trading server, responsive to said workstation and connected to said weather history database and said weather forecast database, that obtains a value of the financial instrument by applying a pricing model using said specified inputs from said user.

12. The system of claim 11, further comprising a financial database that stores risk-free rate information used by said trading server to valuate the financial instrument.

13. The system of claim 12, wherein said pricing model is the Black-Scholes pricing model.

14. A computer system for valuating a weather-based financial instrument, comprising:

means for receiving information representative of a start date and maturity date for the financial instrument;

means for receiving information representative of a geographic region to be covered by the financial instrument;

means for receiving information representative of a weather condition that the financial instrument will derive its value from;

means for receiving information representative of a risk-free rate;

means for receiving historical weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date;

means for receiving future weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date; and

obtainimg a value of the financial instrument by applying a pricing model using said historical weather information, said future weather information, and said risk-free rate.

15. A computer program product comprising a computer usable medium having control logic stored therein for causing a computer to valuate weather-based financial instruments, said control logic comprising:

first computer readable program code means for causing the computer to receive a start date and maturity date for the financial instrument;

second computer readable program code means for causing the computer to receive a geographic region to be covered by the financial instrument;

third computer readable program code means for causing the computer to receive a weather condition that the financial instruments will derive its value from;

fourth computer readable program code means for causing the computer to receive a risk-free rate;

fifth computer readable program code means for causing the computer to access historical weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date;

sixth computer readable program code means for causing the computer to access future weather information, relating to said weather condition, for said geographic region during the period between said start date and said maturity date; and

seventh computer readable program code means for causing the computer to obtain a value of the financial instrument by applying a pricing model using said historical weather information, said future weather information, and said risk-free rate.

16. The computer program product of claim 15, wherein said pricing model is the Black-Scholes pricing model.