Strength in numbers

Weather derivatives seem to have a bright future: the market is enjoying record liquidity levels as new players, trading ever more diverse products, flood into the market. Oliver Holtaway reports

After stalling in the wake of the Enron scandal, the weather derivatives market appears to be back on track. New players are entering, liquidity is at unprecedented levels and the types of weather trades and products available to energy firms are becoming more diverse.

The first half of 2005 has produced an explosion in the number of weather contracts traded at the Chicago Mercantile Exchange (CME): more than 500,000 contracts had been traded by mid-July. This compares with the 122,000

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