UBS Investment Bank today announced the launch of the UBS Global Warming Index, a tradable benchmark for global investments in the weather derivatives market.

The firm touts the new index as the first weather index designed to reflect the current needs of the investment community. “It provides a rational and simple way to obtain exposure to the weather asset class,” UBS says.

The UBS-GWI is constructed using liquid, actively traded Heating Degree Day and Cooling Degree Day weather futures contracts. Initially, the index will be composed of weather futures contracts of 15 U.S. cities traded on the Chicago Mercantile Exchange.

There is no limit to the number of cities which can be included in the index. To be eligible for inclusion, the volume of futures traded for any given city must represent 1% or more of the total weather derivatives contracts traded on the CME. It is anticipated that cities from Europe and Asia will join the index in the medium term.

The UBS-GWI Governance committee will meet annually to determine the composition and the weighting of the UGWI index and its sub-indices family, which is currently composed of four US regions or sub-indices: Northeast, Midwest, West and South.

“Weather derivatives volumes have increased dramatically over the course of the last few years yet they remain an untouched asset class for the vast majority of the financial community,” Ilija Murisic, executive director, Hybrid Derivatives Trading at UBS, said. “UBS’ new Global Warming Index will create a mainstream market in weather investing for the first time, providing a simple way for a broader range of investors to gain exposure to the weather asset class – end-users can hedge their exposure to weather and it allows both institutional and private investors to diversify their portfolio with an alternative asset class either directly with the index or through hybrid structured products”.

Andy Felce, managing director, Global Head of Structured Rates at UBS said, “Over the years, UBS has developed a strong position in Hybrids with ‘classic’ asset-classes such as Equities, Credit, Rates, Currencies and Commodities. With the UBS Global Warming Index, we are expanding our structured product offering to Alternative Asset Classes in a very simple format starting with weather.”