AIR clarifies data. (Property/Casualty: Loss/Risk Management Notes).

AIR Worldwide Corp. has released its updated, reconstructed U.S. weather data. The update, by AIRWeather, the company's weather risk management service, provides weather-derivatives traders with a consistent and historical temperature time series for weather stations nationwide. The new data accounts for station shifts and environmental changes that impact historical weather observations.

For example, sensors at weather stations are often moved, which can lead to variations in observations. Weather derivative contracts may be written and based on the temperature at a station with 25 years of historical data. If a station moved its sensors to a cooler location five years earlier, the result would be five years of cooler observations and 20 years of warmer observations.

By using the full 25 years of inconsistent data, the estimate will be biased toward the earlier warmer observations. The historical data will not be representative of estimated future observations, resulting in a flawed derivatives contract. AIRWeather solves this problem by reconstructing the data to represent accurate historical weather observations regardless of station changes. The new process employs sophisticated algorithms with improved design to detect variations in temperature resulting from station shifts and environmental changes since 1950.

The reconstructed data adds 15 weather stations, bringing the total stations monitored by AIRWeather to 235 in the United States.