Weather Fear Premia Trades: An Update
By Hilary Till, Solich Scholar, J.P. Morgan Center for Commodities, University of Colorado Denver Business School; and Principal, Premia Research LLC
This article reviews a class of trading strategies known as “weather fear premia” trades. The article argues that these trades may comprise a type of risk premium and notes the extra diligence needed in their risk management. The article explains that both superior trade construction and an analysis of fundamentals are also critical for the successful implementation of these types of trades. The paper concludes with a cautionary note on a catastrophic trading blow-up that occurred in November 2018, illustrating the risk of such strategies.
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