Sunday, May 31, 2020

The "Weather-VIX" -- A Volatility IndeX for Weather?

A better way to understand climate change and global warming may be to focus less on quantifying the direction of changes, but on quantifying the volatility of weather extremes of all kinds -- temperature, precipitation, humidity, wind, storms, etc.

Many have noted that "global warming" is not just a matter of warming, and that we might better focus on solving the problem with better messaging. Tom Friedman has referred to it as "global wierding," saying, "The frequency, intensity and cost of extreme weather events all increase. The wets get wetter, the hots get hotter, the dry periods get drier, the snows get heavier, the hurricanes get stronger. Weather is too complex to attribute any single event to climate change, but the fact that extreme weather events are becoming more frequent and more expensive — especially in a world of crowded cities like Houston and New Orleans — is indisputable." Brad Plumer made similar points about the need for more understandable messaging.

I have been suggesting that we track and report a “Weather-VIX” (WVIX) -- much as financial markets track a "Volatility IndeX" (VIX). In financial markets, the VIX is often understood as a "fear index." For weather, it might be seen as a "disruption index."

A Weather-VIX volatility index for our weather, would be a complementary metric to average temperature trends. By tracking the volatility of weather (from day to day), wouldn't we see a very significant and increased volatility in temperatures, precipitation, and wind speed? Unlike the small changes in average temperature, volatility trends might be far more dramatic, and much less easily dismissed as just a natural fluctuation. Refocusing on volatility would also remove silly arguments that extremes of cold refute global "warming" -- of course the warming is not always "global," and is not always consistent at any given time. We can better understand that the weather will not be volatile at any given place at every given time, but tracking volatility in each region would give clearer evidence of increasing overall volatility, and how that varies from region to region.

This WVIX could also be tied to the monetary costs of extremes in both directions -- “WVIX-cost.”

Even if only based on data for the last hundred years or so (and only in locations with good data), we might see that violent and erratic weather is already accelerating to increasingly costly levels. Insurance companies will be among the first to see and quantify this as an actuarial cost, but with a simple WVIX index, we will all be able to understand this effect more clearly.


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