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Expert Interview: CME Group on Weather Derivatives

Interview with Anne Krema, CME Group
Interviewers: Yasintorn Wongwoottisaroch and Professor Tolulope Fadina, University of Illinois Urbana-Champaign

This page summarizes an expert interview with Anne Krema from CME Group. The full interview PDF is available here: Download full interview. This interview discusses CME Group’s weather derivative products, market structure, participants, liquidity, climate-risk applications, data sources, and opportunities for academic collaboration.

Market Structure & Pricing

CME Group’s weather derivatives are exchange-traded, temperature-based index products. The primary measures are Heating Degree Days (HDDs), Cooling Degree Days (CDDs), and Cumulative Average Temperature (CAT).

Weather products can be traded through Globex, CME Group’s electronic central limit order book, or through ClearPort, which supports centrally cleared, bilaterally negotiated block trades. Most trading activity in weather derivatives occurs through ClearPort block trades.

Participants & Demand

Major participants include reinsurance companies, energy trading firms, hedge funds, proprietary trading firms, and market makers. Demand is seasonal, with HDD contracts more active in winter and CDD contracts more active in summer.

Supply-Side & Liquidity Dynamics

Liquidity is supplied by market makers, proprietary trading firms, hedge funds, and commercial hedgers. In thinner markets, bid–ask spreads may become wider, and many transactions are negotiated off-screen through brokers.

Climate Risk & Evolving Needs

CME Group’s current weather products are temperature-based, but there is increasing interest in broader climate-related indices. Future growth may come from new cities, new strips, non-temperature climate products, and contract designs better suited to agricultural risks.

Data, Modeling & Indices

Settlement is based on indices provided by Speedwell Weather Ltd., now part of Vaisala. CME Group does not provide pricing models; market participants develop their own models for exposure analysis, strategy building, and price formation.

Academia & Collaboration

CME Group expressed interest in academic collaboration on weather product design, agricultural participation, barriers to broader market engagement, alternative contract structures, and climate-risk modeling.

Conclusion

Weather derivatives remain a niche but growing market. Their structure, specialized participants, broker-led liquidity, and connection to climate risk make them a promising area for actuarial research and industry collaboration.