Arbol, a technology-led underwriter of parametric risk transfer, climate and weather insurance or reinsurance business, has completed a novel trade on a California water price index, executing a call spread option that can help parties hedge against adverse movements in the price of water.
Arbol completed the financial trade on the NASDAQ Veles California Water Index NQH2O, an index that tracks the changing water prices in California.
The NQH2O index takes the volume weighted average price of actual water trades in California, providing a clear picture of the actual cost of water and with this call spread option structure offers a mechanism through which people and businesses can protect themselves against the volatility of water prices.
Arbol executed the trade through a collaboration with Veles Water Limited, a financial products company that specialises in water pricing, designing bespoke financial products, and economic methodologies. The deal was structured with John Dolan, a Veles Water futures market maker on the CME.
The trade effectively turns water into a commodity, with an index that can be used for parametric risk transfer hedges, allowing parties to protect themselves against fluctuation in the California water price.
Arbol said it “provides a clear, fixed risk/reward profile, allowing participants to effectively manage their financial exposure to water price volatility. This option is a strategic tool for those seeking to balance risk with potential rewards transparently and predictably.”
“This trade on the NASDAQ Veles California Water Index is a clear example of how Arbol utilizes geophysical and climate datasets to provide risk management tools to market participants,” explained Scott Klemm, Chief Revenue Officer of Arbol. “Our goal is to empower businesses and individuals to make informed decisions in a world where water is a crucial asset that needs careful management.”
“We enjoyed interacting with Arbol in getting to a structure that works and is trade able, plus easy to understand. Notably it limits the risk the buyer takes to just the premium paid and allows easy access to the water price,” added Lance Coogan CEO of Veles Water Limited.
View all of our Artemis Live video interviews and subscribe to our podcast.
All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.
Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.
