Category Archives: Weather derivatives

Re-Submitting to Kickstarter

If at first you don’t succeed, try and try again. So goes the old adage, and so I blindly follow it where ever it may lead. Kickstarter recommended I remove some references to Bitcoins (i.e. Cash Equivalents) which is fair – it’s Out of Scope anyway.

I also upped the amount, making it less likely to get all the pledges required, but more likely that I could do everything I want to do should it succeed (i.e. employ others to do the work). I continue to do a lot of the coding myself (did you know for instance, that java code compiled on my Linux dev machine at home doesn’t run on my Linux web host?) I’m also happily at work coming up with features that I would want (as a user) making me believe it’s not wasted effort.

I’m also reading about how the CBOT does their Mark-to-Market Settlement (13:15 each day) and Delivery (T+3 as chosen by the deliverer). If this were real, there’d also be margin criteria and default collateral which OFSI helpfully provides how to calculate.

Interest rate swaps (to convert a mortgage from variable to fixed, or vice versa) or facilitating OTC derivatives (thereby removing Massive Rainfall as the buyer for all sellers, and the seller for all buyers) is a little bit more than cool. Goldman Sachs does something similar.

Why doesn’t everyone do this?

Hitting the Submit Button

I’ve fired off my project to Kickstarter to see if they’ll ok it. It’s very different than anything else they support – and its potential to become a business are obvious.

My hopes and dreams now rest with a faceless entity behind the internet on the other side of the continent. Who knows what the future will bring.

Also – the orders are submitted to the ‘Exchange’. They’re not matched yet. I found out that my web host’s PHP is a different version than my development environment. Had to convert some of the “protocol” code to pass transactions back and forth. Still need to transfer the Matching Engine. So much to do…

For the record: I don’t want to code. I just want it to work!

Submit Order

I’ve had the pieces in place for a while, but I finally connected up the dots. Basically, Weather Futures allows a user to select a security (City + Date) and use that security to enter an order.

Weather Options, Celebrities and Traffic don’t work yet. Weather Futures isn’t fully complete either – but I’m further along. Small steps.

Next steps:

  1. Send the order to the exchange
  2. Have periodic updates from the exchange to the web for status updates/trade fills
  3. Have periodic updates from the web to the custody system for settlement
  4. Have periodic updates from the custody system to the web for status updates

Also, once the flow is entered, there appear to be duplicates in the Security database. Three securities exist when there should only be one. Clean-up required.

Disruptive Technologies

A “recent” article on weather derivatives at Time.com – cost for $100k of “Snow Insurance” costs $19,000.

I’m hoping to cut that cost by 97% (if it refers to a Future). For weather options, it’s more difficult to estimate the market price of a Snow put option without critical mass on the exchange.

Forbes has a more recent article. Nobody wants to buy or sell Snow derivatives. Not one was traded in 2013. Perhaps I can offer a new approach?

The Purpose of Micro-Derivatives

Derivatives, in the past, have served a simple purpose: to divide up the risk of some commodity’s “price” that businesses rely on, and to pass that risk onto others who are more able to manage that risk.

Equities or shares of a company are a type of derivative by their very nature. Equities derive their value from the underlying company’s assets and its expected profits.

Bonds or loans are derivatives of a contract with their value derived from the PAR value at maturity, the likelihood of repayment and the duration when that repayment is due, among other things.

Could we not come up with derivatives outside of of the Equity, Bond or Commodity markets? Once started, it’s difficult to stop:

  • Baseball player’s salaries
  • Traffic at 6:30pm on a Friday on the I-95 highway within Detroit’s boundaries
  • Goals per game by the Toronto Maple Leafs
  • Number of babies born each month in New York
  • Temperature at Mid-Day on a specific date
  • Life expectancy of certain celebrities
  • The costs associated with a tornado destroying your home

The distinction of whether this is “gambling” or “hedging” seems to lie in whether there is a business need to quantify a given risk. Insurance is a derivative only by another name. Insurance fills an emotional need of the person avoiding risk. Derivative is a speculative investment prone to destroying our financial markets and sending us head-long into a recession.

Derivatives need a better PR manager.