Arbol, the global climate risk coverage platform, has executed an innovative parametric risk transfer on the NASDAQ Veles California Water Index NQH2O.
A first-of-its-kind trade, which has a call spread option that expires on June 20, 2024, represents a major step in managing climate-related financial risks, particularly within the water sector.
The NASDAQ Veles California Water Index, – also known as NQH2O – is an essential tool that helps track the changing water prices in California. The tool takes the volume weighted average price of actual water trades in California, which helps to give a clear picture of the actual cost of water.
The tool is a helpful resource for understanding water prices, and it is especially useful for creating financial options too.
From what we understand, Arbol executed the trade in strategic collaboration with Veles Water Limited, a financial products company that specializes in water pricing, designing bespoke financial products, and economic methodologies.
At the same time, Arbol has also structured this unique deal with John Dolan, a renowned Veles Water futures market maker on the CME.
This parametric risk transfer marks a significant step within environmental financial products, as it offers a new way to manage the risks associated with water scarcity and pricing.
Moreover, the call spread on the NASDAQ Veles California Water Index NQH2O is a clear testament to Arbol’s approach to climate risk management.
It provides a clear, fixed risk/reward profile, which allows for 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.
Scott Klemm, Chief Revenue Officer of Arbol, commented: “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. 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.”
Lance Coogan CEO of Veles Water Limited, said: “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.”
