Year of Publication

2013

Degree Name

Doctor of Philosophy (PhD)

Document Type

Doctoral Dissertation

College

Agriculture

Department

Agricultural Economics

First Advisor

Dr. Jerry Skees

Second Advisor

Dr. Wuyang Hu

Abstract

This dissertation provides the analysis necessary to launch the first direct climate markets. Combining statistical modeling with qualitative interviews, I build off of an innovative insurance project to show why and how to start traded markets on indexes of El Niño/La Niña. I provide statistical models of El Niño/La Niña's worldwide economic impacts; a stochastic catalog used to price virtually any risk management contract on El Niño/La Niña, even as new forecasts change traders' expectations; a comprehensive statistical description of the lifecycle of new derivatives showing how the prospects for new derivatives changed fundamentally in the last decade (this work is co-authored by Michael Penick, Senior Economist at the US government's derivatives regulator, the Commodity Futures Trading Commission); and, interviews with risk management professionals at businesses facing El Niño/La Niña risk and financial firms interested in trading that risk. Based on this analysis, I conclude that catastrophe bonds settling on NOAA's Niño 3.4 sea surface temperatures can, and likely will, launch in the near future.

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