Tag: Collateralized Debt Obligation

Introduction To Weather Derivatives

by Felix Carabello, Associate Director, Environmental Products, Chicago Mercantile Exchange

Weather: Risky Business

It is estimated that nearly 20% of the U.S. economy is directly affected by the weather, and that the profitability and revenues of virtually every industry – agriculture, energy, entertainment, construction, travel and others – depend to a great extent on the vagaries of temperature. […]

In a 1998 testimony to Congress, former commerce secretary William Daley stated, “Weather is not just an environmental issue; it is a major economic factor. At least $1 trillion of our economy is weather-sensitive.”

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If there were only some way, to “Hedge that Bet” — against the ever present risk of Foul Weather.

No Worries — Where there’s a Market Risk, there’s always a Wall Street Way!

How does your Obligation to make your Mortgage Payments, turn into some unseen Investor’s “Income Stream”?

Easy — thanks to Derivatives and CDO’s (Collateralized Debt Obligation).

For the mere Price of Admission, those unseen Investor’s get to divvy up your Mortgage Payments, among themselves — long as they “promise to pay off” that Debt, WHEN, for whatever reason, you are no longer able to make those Obligatory Payments …

Piece of Cake!

Geesh … WHAT could ever go wrong with this picture?