Our Calculation Methodology

A transparent breakdown of how we estimate probabilities and compare data.

1. Transparent Heuristic Temperature Model

Instead of claiming proprietary "AI prediction" capabilities, WeatherMarketWatch uses a transparent, rules-based heuristic temperature-distribution model to estimate outcome probabilities.

We model the high temperature on the target calendar day as a Normal Distribution $N(\mu, \sigma^2)$:

Mean ($\mu$): Centered at the official National Weather Service (NWS) point forecast high temperature.
Standard Deviation ($\sigma$): Scales dynamically based on the forecast horizon (days remaining until settlement) and weather risk flags:
- Same day (nowcast mode): $\sigma = 1.0^\circ\text{F}$
- 1 day out: $\sigma = 1.5^\circ\text{F}$
- 2 days out: $\sigma = 2.0^\circ\text{F}$
- 3+ days out: $\sigma = 2.5^\circ\text{F}$
- Thunderstorm risk flag: Add $+0.5^\circ\text{F}$ to $\sigma$
- Precipitation / Rain flag: Add $+0.3^\circ\text{F}$ to $\sigma$
- Overcast / Heavy clouds flag: Add $+0.2^\circ\text{F}$ to $\sigma$

2. Outcome Probability Integrals

Because daily high temperatures are reported in whole degrees, we apply half-degree offsets to represent outcomes as continuous brackets. We integrate the Normal Cumulative Distribution Function (CDF):

Standard Normal CDF: Φ(x) = 0.5 * (1.0 + erf((x - μ) / (σ * √2)))

Exact value outcomes (e.g. 85°F): We calculate the probability that the high falls in the range $[84.5^\circ\text{F}, 85.5^\circ\text{F})$:
Probability = Φ(85.5, μ, σ) - Φ(84.5, μ, σ)
Range brackets (e.g. 84-85°F): We integrate from the lower bound minus 0.5 to the upper bound plus 0.5:
Probability = Φ(85.5, μ, σ) - Φ(83.5, μ, σ)
Open-ended upper bounds (e.g. 86°F or higher):
Probability = 1.0 - Φ(85.5, μ, σ)

3. Confidence & Model Maturity Rules

To prevent overconfidence, we apply the following safety caps:

Database maturity cap: All confidence outputs are strictly capped at Medium until the database has compiled at least 50 resolved comparable markets.
Boundary flag: If the forecast mean ($\mu$) lies within $0.5^\circ\text{F}$ of any outcome threshold, the market is flagged, and confidence is reduced due to boundary volatility.

4. Simulated Paper Trading Positions

Paper signal simulations apply conservative execution assumptions:

Order sizes: Fixed at $10.00$ virtual dollars per eligible signal.
Exchange fees: We apply a $1.0\%$ flat transaction fee penalty on entry.
Slippage: We apply a $0.5\%$ slippage penalty on entry.
Triggers: Signals are only simulated if the spread is narrow ($< 0.10$), liquidity is sufficient ($> \$100.00$), and the forecast-vs-market difference exceeds $5.0\%$.

Site Warning

WeatherMarketWatch compares public forecast data, market prices, and settlement rules. It does not provide financial, legal, or investment advice. Weather forecasts can change quickly, markets can be wrong, and past performance does not guarantee future results.