1

Speedwell Weather System

An Overview

Vs 6.5The Open Weather Derivative and Risk

Management System

2

Contents

SWS Features by function

Pricing Features

Secondary Market Support

Portfolio VaR and Credit Risk Reporting

Back Office Integration

Weather Dependency Analysis

Weather Data Management

General Architecture

SWD Contact Details

3

Speedwell Weather System

SWS is an open system for pricing weather derivatives, managing risk, managing the back office process and assessing client weather exposure. SWS incorporates full and seamless integration of weather data from multiple providers. SWS covers the

need of both secondary market traders and exotic insurance type transactions.

This presentation describes some of its features

4

SWS 6.5 System Features by Function

•Revenue / Volume or price risk analysis•Revenue Vs single Weather Index analysis•Revenue Vs multiple indices optimisation analysis•Post-hedge revenue analysis •Client Risk Report hard-copy •Option and Portfolio effectiveness analysis

Weather Exposure Analysis

•Transaction recording•Trader permissioning features on portfolio•Marginal-impact of next transaction analysis•Indices regression analysis•Historical portfolio analysis•Portfolio greeks report•Simulation based profit at risk analysis•VaR measure•Risk location visualisation map tool•Back office reporting•Risk Reports, Daily VaR reports•Impact of each option shown on Markowitz chart•Credit risk reports (any period)•P&L reports (global and by portfolio)•P&L reports (mark to market and mark to model)•Unlimited number of portfolios•Ability to define and save index models, pricing models and portfolio risk models. This allows portfolio value sensitivity to pricing model to be assessed•VaR can be assessed exclusive or inclusive of premium•Stochastic dominance methodology applied to portfolios•Chronological VaR calculations

Risk Management / Middle Office

•Live delivery of Futures and Options prices to the trader •Flexible “Market-View” grid combining market prices, positions and value analysis•Optional SWS YellowJacketR interface component•Optional SWS CME© interface component including closing prices •Record OTC market prices•View historic prices•View relationship between forward and swap•Use the Swap curve tool for further swap level analysis

Market Information

•Setting up of clients•Monitoring trade life cycle•Optional module for the automatic creation of invoices and contracts•Automatic calculation of settlement value•Transaction list•Settlement list•Post settlement adjustment list•Trade settlement life cycle management•Company contacts•Client contacts

•Pricing of vanillas, baskets, spreads and exotics•Real Time centralised calculation server•Automatic generation of period means and volatilities•Multiple detrending methods including LOWESS•Option to detrend series before index building•Multiple distribution analysis tools (normal, kernel etc)•Support for probabilistic forecasts•Full Support and automatic integration of ensemble forecasts (pricing and risk management)•Support for Hourly Indices and Strip Pricing•Support for in-term contracts with automatic calculation of partial index•Temperature simulation using seasonal residue distribution•Supports both capital market and actuarial pricing•Back-out implied vols/means from market prices•Pricing supports multiple distribution types•Automatic generation of hard-copy pricing reports•Day of week or specific day exclusion index builder•Support for exotic index creation with user-entered formula•Pricing matrix (e.g. show call prices given vols, strikes)•Swap Forward Curve•Futures Position Analysis feature•Valuation of in-period contracts•Tool for analysing the marginal impact of forecasts on pricing and portfolio risk•In-period “cone” analysis •Extraction of volatility smile•Extraction of volatility curve•Simple extraction of 1 week/1 month term index means / vols (or any other period)

•Generic FTP data importing tool for multiple data vendors•NEW support for Speedwell Recalibrated Datasets•Support for any Data Provider required•Specific single button press integration •Automatic implementation of WRMA data filling•Data quality control tool•Support for 10 day, monthly and Seasonal ensemble forecasts for viewing, pricing and risk management•SWS DBAccess tool for supporting the SWS database•Configurable on missing data actions•Automated data download from other suppliers on request•Data recorded separately as synoptic, climate and reconstructed•Full audit trail of data source files and changed data points•Alerts for post settlement adjustment•Enhanced support for CME weather Futures and Option Contracts•System security tool for easy security configuration•SWS Data Cache Centre for the storage of pricing data to facilitate quick and efficient calculations

Data

Back OfficePricing

5

Pricing Features

6

Pricing Main Features

Support for all types of CME, OTC vanilla and exotic derivatives. User can design own pay off function

Full support for the delivery of real time prices for futures and options including optional real-time YellowJacket® interface

Hourly & Daily compound indices on any weather elements

Support for any combination of derivatives as a strip (multi year, multi month, flexi, etc…)

Many statistical methods to detrend the data, fit distributions, perform Monte Carlo simulations

Full back and middle office module

Full weather data and forecast data management on own database

7

Speedwell Weather SystemPricing Features

A range of index types, weather references and option periods are available. Single, Compound and Hourly Indices can be calculated, allowing the additional use of Spreads and Baskets

Large range of standard index and option types. Facility to create your own option type

Specify Models at the Index, Option and Portfolio level to specifically tailor index, option and Portfolio pricing methods

Option to exclude all days of a week AND specific days (e.g. bank holidays)

Explicit support for uncapped structures

Partial Indexing can be used to price structures that need to be priced within the index period

View the historical payoff and final index values for each historical option period for all the available years of data here

8

Speedwell Weather SystemPricing Features

SWS allows the trader to easily see the impact of different periods on burns and the impact of different detrending methods on pricing

9

Ensemble Forecasts (unlimited number of members) and deterministic forecasts from multiple suppliers are fully integrated into pricing and risk management in SWS.

Prices and portfolio valuations can be seen with and without forecasts. In the case of ensemble forecasts, the average, median, worst or best case can be selected. A structure can also be priced SEPARATELY using EVERY single ensemble to correctly capture outliers (important with convex structures such as options, critical day structures, vanillas in the shoulder months)

Shown above are two tools that are used to examine the marginal impact of forecasts on pricing an individual option or portfolio. All forecasts are persisted allowing for retrospective portfolio valuations and allowing for independent skill scoring. It is also easy to render forecasts graphically

Speedwell Weather SystemForecast Integration

Portfolio Forecast Impact Analysis

View the impact of multiple forecasts on pricing

10

Speedwell Weather SystemForecast Visualisation in SWS

View Multi-Member Ensemble Forecasts as path plots

View Multi-Member Ensemble Forecasts as box-plots with average and N-years’ climatology overlaid

Compare successive forecasts sequentially. This can also be done for forecasts issued on a given day by multiple suppliers

Seasonal and monthly ensemble forecasts are also supported. Shown here are the average and 10 year climatology.

11

Probability Distribution Functions of ensemble forecasts can now be viewed within SWS. This allows the nature of the distribution and the evolution of uncertainty over time to be visualised graphically.

The width of the curves exhibited are good indicators of the likelihood of the forecast outcomes – the forecast confidence for each day can be inferred from this.

These curves can also be helpful for identifying when ensemble forecasts predict two or more likely outcomes i.e. a bi-modal distribution which information is lost in a deterministic forecast

Speedwell Weather SystemForecast Viewing: Probability Distribution Graphs

12

Speedwell Weather System Hourly Index Pricing

Hourly index parameters are easy to configure: the required hours of the deal, an index on the hourly data points and the possibility to transform to a daily index. Hourly Intervals can even be used to form indices on irregular intervals such as half hourly or quarter hourly periods

Hourly Indices can be created on both single and compound indices. This allows for support of complex structures including the Schiphol critical hourly based structure

13

Speedwell Weather System Strip Creation and Pricing

The Weather Derivatives Wizard enables quick and easy formation of strips and includes specification of overall negative and positive caps

The pricing of the strip and the component options are shown with separate burn analyses here

Strip pricing analysis also compares the historical and simulated values graphically and gives all the relevant pricing information in this view

14

Secondary Market Support

15

Secondary Market Trading

Main features

Delivery of live futures (and options) prices to the trader via optional YellowJacketR interface

Delivery of CME prices via optional CME interface

CME Closing prices are delivered to the desktop and saved to the database from where they can be used for marking to market.

Ability to add other OTC prices delivered by non electronic method

Calculation of inferred prices, Greeks, marginal VaR, required futures hedging, position in given index. All in real time using a centralised calculation server

View historic bid and ask prices numerically and graphically

View the relationship between a forward and a swap

Swap curve generation that allows for further analysis of swap levels

Pricing matrix to price options given underlying swap

Extraction of volatility smile

16

SWS Futures Live Screen

User chooses fields and structures to be viewed. No limit to the number displayed. Multiple views can be created

Book trades: highlight row, click this button

Press this button for Index Position analysis

Select futures, press this to see instant correlation matrix

The best available market values are displayed from the three live sources (see next slide)

Press this to access the spread / basket calculator

17

SWS Futures Live Screen – Live Feeds

• Live prices from the markets• Current trading positions• Historical statistics• Partial Index and forecast info

User specifies structures per row. No limit to the number displayed

User chooses fields to be viewed

YJS Market Values

OTC Market Values

CME Market Values

18

SWS Futures Models Comparison

View prices from multiple pricing models simultaneously. Choose up to four models.

19

Example SWS Options Live Screen

User chooses fields to be viewed including these

User chooses structures per row. No limit to the number displayed.

Live prices from the OTC markets Option prices

updated in real time using live swap rates. Or highlight row and click to bring up Black 76 calculator where vols and swap levels can be over-ridden to calculate price or greeks backed out given a price.

User can also enter prices manually

Book trades: click row, click this button

Instantly analyse spread or basket trade: select options, press this button

20

Speedwell Weather SystemMonitoring the Secondary Market – Static Data Screens

Market Swap levels can be recorded and tracked. This allows historical charting and the basis between fair value and the swap to be monitored and graphed. Transaction and bid/ask prices of other options can also be recorded

Latest swap levels

Edit or Enter new swap levels

See swap levels evolution vs. user index forward

NB: values shown for illustrative purposes only

Or graph any of these variables:

21

Speedwell Weather SystemPricing Options

Options can be priced individually or in a flexible matrix in which the underlying swap rate can be updated

22

Portfolio VaR & Credit Risk

Reporting

23

Portfolio Main FeaturesGenerate portfolio reports showing: VaR (Expiry and/or Daily VaR) P&L

This can be calculated on a single portfolio and / or “Enterprise-Position” basis

View credit risk By Counterparty By Trader By Personalized “combination” view

Fully customisable Report generation for VaR and P&L (exportable to MS Word ® and MS Excel ®)

Middle Office can override traders’ pricing parameters

24

Speedwell Weather SystemMiddle Office Portfolio Models

Index Models can be specified to tailor aspects of pricing related to Index formation

Option Pricing Models can be configured to set up specifications for pricing a structure

Portfolio Risk Models can be specified along with different combinations of Index and

Option models for each one

Middle Office can override traders’ pricing parameters to give greater objectivity to portfolio valuations when marking to model

25

Speedwell Weather SystemMiddle Office VaR & Credit Risk Reports

Automatic Credit Reports can be generated at the press of a button

Reports can be run for any counterparty using any trade or settlement dates

The ISDA standard 10 years WRMA methodology is supported

26

Speedwell Weather SystemMiddle Office - Portfolios

Portfolio Risk Analysis is comprehensively encompassed by SWS’ Risk Analysis tool. Reports for Options, Transactions, Greeks and Portfolios are all produced for analysis, along with a Markowitz chart showing Portfolio Options Impact

Historical payoffs are generated with the capability of examining effects of changes in options volumes and premiums

- VaR and Credit risk can be calculated on a portfolio basis or on an enterprise-wide basis

27

Speedwell Weather System

Middle Office – Viewing the “greeks”See the greeks when pricing

See the individual transaction greeks in the P&L transaction report (also shown in the portfolio summary). All reports can be exported to MS Excel ®

SWS supports functionality that allows both a capital markets and an actuarial approach to be taken to weather derivative pricing

See greeks summarised by index

Total portfolio Rho and Theta

Set pricing models to change the way each option is priced independently

28

Speedwell Weather System Daily VaR Reporting

View the Daily Value at Risk levels and expected P & L Difference here

View the report of the portfolio by derivative along with the expected profit/loss

29

Speedwell Weather System Middle Office – The Portfolio Constraint

Builder

SWS provides the facility to view impact analysis on a portfolio under specifiable constraints

Specify an option and its payoff details to view the effects of trading it on the portfolio

View the portfolio impact analysis using either historical or simulated values. A summary of the stats is given along with a graph of the distribution of Re-centred Return.

Alter the portfolio optimisation constraints and then run the analysis again to view the impact of changing the constraints

30

Back Office Integration

31

Back Office Main Features

Extensive transaction Reporting (all and outstanding transactions)

Settlement processing and reporting

Trade settlement life cycle management

Consolidated and fully customisable reporting tool

32

Speedwell Weather SystemBack Office Transaction Life Cycle Manager

This tool allows the lifecycle of settling a trade to be followed

Double click on a trade to open the life cycle manager and record details for each step underneath

Fill out this form to record details of each Payment

Easy adding of new stages eg. ‘Confirm with Trade Blotter’

33

Speedwell Weather System Back Office Settlement Report and Settlement Calculation

Automatic calculation of post-settlement adjustment if required

View trades by these filters

Settlement data are persisted for each transaction. Press this button to view them here

Calculate the settlement values here

Easily filter trades requiring post settlement adjustment

Any changed data points highlighted in red

All reports can be exported to MS Excel ®

34

Back Office Invoice and Contracts – Generating Invoices

Invoices can be made for premium, broker fees, settlement and post settlement adjustments. For each counterparty an invoice of each currency will be generated and a full audit trail is available from the list of invoices

35

Back Office Invoice and Contracts – Creating Contracts

Contracts can be generated for any company and any transaction. Multiple contracts can be generated for multiple transactions simultaneously. A full audit trail is available from the List of contracts

36

Back Office Invoice and Contracts – List of Invoices

All created invoices are listed and can be interrogated via the use of extensive filtering

Invoices can be marked as paid. The transaction life cycle is then automatically updated throughout the SWS Back Office

37

Back Office Invoice and Contracts – List of Contracts

Full support for automatic contract generation including full audit trail of all created contracts

All contracts can be opened from this screen once created

38

Weather Dependency

Analysis

39

Speedwell Weather System Main Features

Analyse data dependency between revenues and weather indices

Find out the most correlated basket index to the data under constraint

Estimates the impact of hedging revenues with one or several derivatives bundled in a portfolio

40

Speedwell Weather SystemWeather Dependency Analysis

Weather dependency can be easily viewed on a weekly, monthly or annual basis (subject to data constraints). An index can be generated. Indices can be created to observe weather effects. Automatic generation of MS Word ® and PowerPoint ® presentations can be created from this analysis for delivery to potential clients

SWS has two tools for correlating weather dependency to different sites / indices and for automatically creating WD structures to reduce weather dependency. This can be done at an option level and at a portfolio level. Above is shown the Portfolio protection tool, where the protection effect of all available portfolios can be analysed against client revenue streams

41

Weather Data Management

42

Weather Data Main Features

SWS is open to multiple data providers

Fully automated download to SWS database from numerous leading global data and forecast providers respecting different data types

Easy import of deterministic and ensemble forecasts

Full audit trail of weather data changes

Full quality control testing and reporting functions for independent data integrity analysis

43

Speedwell Weather SystemWeather Data Importation

File directory structure is listed here

Data can be imported by setting the filter with the button at the top of the page and then pressing the ‘Import Grid to Database’ button

Simply paste the data (either using the keyboard shortcut or the ‘Paste Values’ button) of dates and temperature data into the grid, click the ‘Set Station’ button and click the ‘Import Grid to DB’ button. Various default Import options can be set via the ‘Options’ button

Standard CSV Importer Simple Copy and Paste from Excel

SWS is an open system. Weather data from any source can easily be imported into SWS own database. A full audit trail is provided.

44

1. Connect to site and choose files

3. Confirm download to SWS Database or select the option for SWS to import the data automatically

5. Changed data points can be reported

Speedwell Weather System Automatic Weather Data download

SWS is open to any data provider. Full automatic integration has been implemented with a number of providers. The process shown below can be fully automated.

2. All the files in the list can be downloaded by using the ‘Download All’ option. Data can also be downloaded from multiple providers

4. SWS automatically updates data and creates new sites if necessary. Time of update recorded

45

Speedwell Weather SystemWeather Data Auditing

SWS offers numerous data auditing options including the Data Auditor itself, Weather Data Reports, Dataset Comparisons, Data Viewer, Data Update Displayer and NOAA List Displayer.

The Data Auditor can be used to examine the validity of data pertaining to individual sites. Erroneous or potentially erroneous data points are reported for immediate investigation. Missing data points and daily information are also provided

QC Reports can be generated to perform tests on weather data and flag any data that fail (possible actions are circled in red). The flagged data are grouped together in a report and saved to the database. A QC report can be designed to match exactly what is wanted by modifying the configurable settings to use. Reports can be configured to run automatically at a specific time or straight away

46

General Architecture

47

Automatic download of weather data and forecasts (ensemble and deterministic)

Trader 1 ..Trader N

Sales / Structuring

Administrator

Middle Office

Back Office

Daily and expiry VaR Reports

P & L ReportsTicket Generation

WXML Confirms

P & L Reports

VaR Reports, credit risk reports

Speedwell Weather System- Multi User Environment

Head Trader

SWS Central Server and Database

PricingRisk managementData quality controlP & LTicket booking

PricingRisk managementData quality controlP & LTicket booking

PricingP & LRisk Management all books and consolidatedWeather dependency analysis, credit risk reportsData quality controlTicket Booking

PricingClient revenues analysisAdd client data

Mark-to-marketRisk management VaRCredit risk reportsP & L

View trades / confirmView reportsCalculate settlementPost settlement adjustment alertSet user permissionsModify tickets

Data quality controlForecastsClient data / gas / power dataPermissioningWeather data updates

Live MarketsReal-time Live Prices

YellowJacket OTC Market interface

CME Market Interface

OTC Prices

Multiple Data Providers

48

Speedwell Weather System

Summary

SWS Offers:

Powerful secondary market functions including pricing grid for displaying unlimited number of secondary market prices with real-time price feeds.

Full integration with multiple weather data and forecast providers

Pricing methods for standard, exotic and strip derivatives

Support of daily & hourly data with auditing tools

Support for standard and advanced weather specific statistical analysis: e.g. distribution fitting, detrending method testing

Full middle and back office management facilities. Middle office can independently verify valuations with separate models.

Full permissioning model. Full audit trailing on all data.

..and a dedicated support team developing software that keeps you ahead of the market

49

Regarding world-wide weather data and forecast matters please seewww.SpeedwellWeather.com or contact:

Phil Hayes phil.hayes@SpeedwellWeather.comDavid Whitehead (U.S) david.whitehead@SpeedwellWeather.comTelephone:UK office: +44 (0) 1582 465 551US office: +1 (0) 703 535 8800

Regarding software, weather risk placement and consultancy services please see www.SpeedwellWeather.com or contact:

Stephen Doherty stephen.doherty@SpeedwellWeather.comDr Michael Moreno michael.moreno@SpeedwellWeather.comDavid Whitehead (U.S) david.whitehead@SpeedwellWeather.comTelephone:UK office: +44 (0) 1582 465 569US office: +1 (0) 703 868 6083

Address UK: Mardall House, Vaughan Rd, Harpenden, Herts, AL5 4HUAddress USA: 101 N Columbus Street, Second Floor, Alexandria VA 22314 USA

Speedwell Weather Derivatives Limited is authorised and regulated by the Financial Services Authority.Registered Offices Mardall House, 9-11 Vaughan Road, Harpenden, Herts AL5 4HU, UK. Company No 3790989.

SWD Contacts