If you get stuck in a snowstorm at Boston's Logan International Airport next month, you probably won't be happy. But in a commodity trading pit in Chicago, investors may be cheering.
The Chicago Mercantile Exchange, the biggest U.S. market for futures and options - sophisticated financial mechanisms for betting on the future prices of everything from stocks to bacon and orange juice - says it will offer two new financial contracts pegged to snowfall at Logan and in New York's Central Park. The more snow that falls at Logan, the higher the value of the financial contract.
The Chicago Mercantile Exchange already does a brisk business in weather-related financial derivatives based on temperatures, and last year it began offering a contract tied to whether frost forms in the Dutch capital of Amsterdam.
The Logan and Central Park contracts are the first involving snow. They will begin trading Feb. 26, covering the cumulative amount of snow falling each month between October and April.
Merc spokesman Allan Schoenberg said potential buyers could include city and state governments seeking to protect themselves against the costs of a huge storm or plowing company owners protecting themselves against a snowless winter by buying a contract whose value would increase in inverse proportion to how much snow falls.
All kinds of investors who think they can make money by accurately forecasting how much snow will fall could also use the contracts as a way to bet on their predictions.
Boston, for example, could buy an option to buy the snow contract through a winter. As snowfall levels rose, the value of the contract would soar, which could offset the added cost of plowing city streets.
Schoenberg said the Merc initially opted to offer snow contracts only in Boston and New York, because they have government weather data going back more than a century. And they represent the two biggest U.S. metropolitan areas most likely to face "significant economic impacts from snow."
Ten years ago, the Massachusetts Port Authority reaped a $1.6 million gain from a snow insurance policy. It bought a $400,000 policy from a Michigan insurer that promised to pay the port authority $50,000 for every inch of snow over 44 inches that fell during the winter of 1995-1996, up to a cap of $2 million. More than 100 inches of snow fell that winter.