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

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.

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.

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.

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.

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.