ForecastEx Proving Ground

Why a Proving Ground

Calibrated probability is only valuable if it is demonstrably accurate. Backtests are necessary but insufficient — they are retrospective, cherry-pickable, and carry no financial conviction. Cliff Horizon validates its engine on ForecastEx temperature contracts: a regulated, daily-settling weather prediction market where real capital is at risk and every position resolves against independently published data.

The proving ground serves one purpose: when the engine says 70%, the outcome happens 70% of the time. The reliability diagram and Brier scores generated from live trading become the credential that unlocks Tier 2 warranted analytics and Tier 3 parametric derivatives via Ensuro.

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Platform — IBKR ForecastTrader

ForecastEx weather markets are accessible via Interactive Brokers. Cliff Horizon (Singapore-domiciled) accesses ForecastTrader via IBKR Singapore Pte. Ltd., a confirmed eligible entity.

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Contract Structure

ForecastEx temperature contracts are binary YES/NO contracts priced between $0.01 and $1.00.

Event question: "Will the daily high in [region] exceed [##]°F on [date]?"

Key specifications:

• "Exceed" means strictly greater than — if the threshold is 75°F and the observed high is exactly 75°F, the outcome is NO. This distinction matters at boundary strikes where distribution mass is concentrated.
• Product code: DH + three-letter NWS region code (e.g. DHNYC, DHORD)
• YES pays $1.00 if daily high exceeds the threshold; NO pays $1.00 if it does not
• Maximum loss: premium paid per contract
• Minimum tick: $0.01
• Thresholds (strikes): Listed at ForecastEx's discretion
• Last trading time: 23:59 local time on the contract date
• Position accountability level: 250,000 contracts per Forecast Market
• Order type: Limit orders only — no market orders permitted (Rule 403)
• Collateralisation: Full collateralisation required at all times (Rule 608)

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Settlement Source

Settlement uses the NWS Climatological Report (Daily) — published the morning following the contract date. The settlement value is the "Maximum Observed Value" in the Temperature table of the report titled "The [region] CLIMATE SUMMARY FOR [date]..."

Fallback Hierarchy

If the Climatological Report has issues, a precise fallback mechanism applies:

1. Normal case: Settlement uses the daily Climatological Report maximum temperature
2. Discrepancy case: If the daily report maximum is less than the intraday report value, settlement is delayed until 10:00 AM CT to allow for a revised version
3. No revision by 10:00 AM CT: Settles on the daily report value as published
4. No final version published: Resolves to the greater of (a) the intraday report maximum, or (b) the highest METAR observation

Settlement Timing

• Resolution time: When the NWS Climatological Report is released for the relevant region
• Settlement: 13:00 CT on day of resolution if resolution occurs before 12:00 CT; otherwise 13:00 CT the following day
• Settlement is irrevocable and unconditional (Rule 603)
• Temperature contracts are not subject to early resolution

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Exchange Economics

Contract pair creation fee: YES + NO must collectively cost $1.01 for a pair to be created (Rule 602(c)). The $0.01 excess is the exchange fee.

Offsetting positions: A trader cannot simultaneously hold YES and NO for the same Forecast Market. If offsetting occurs pre-resolution, netting deadline is 16:00 CT daily. Offset = both positions cancelled, $1.00 credited per pair (Rule 604).

Collateral rebalancing: At least once per Settlement Bank Business Day at 16:00 CT — mark-to-market, but no P&L is realised until settlement (Rule 609(f)).

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Edge Calculation

The engine's edge on any given contract is the difference between its calibrated probability and the market-implied probability:

edge = engine_probability − market_price

For a YES contract priced at $0.65, the market implies P(YES) = 0.65. If the engine calculates P(YES) = 0.80, the edge is +$0.15.

Trade Guardrails

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Track Record Schema

Every position is logged with full layer attribution:

Layer-specific attribution fields (physical, behavioural, meteorological) are recorded for every trade to measure each layer's contribution to accuracy over time.

Monthly Report Metrics

Win rate by city, accuracy vs NWS-LAMP baseline, mean absolute error, layer-by-layer contribution, Sharpe ratio, maximum drawdown, return on capital.

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From Proving Ground to Commercial Product

The proving ground is not the business — it is the credential. The 90-day reliability diagram and Brier scores from ForecastEx trading become the evidence presented to:

• Tier 2 clients — justifying the cash-paying performance warranty
• Ensuro — qualifying as a Risk Module partner with demonstrated calibration accuracy
• Institutional prospects — differentiating Cliff Horizon from competitors who rely on backtests alone

ForecastEx is the only regulated, daily-settling weather market with transparent pricing. No equivalent exists for rainfall, irradiance, or wind. The temperature track record bridges to the multi-variable product: "We proved our calibration methodology works where you can verify it. Trust us to apply the same methodology to the variables where you can't."

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Multi-Horizon Proving Ground

ForecastEx daily temperature is the primary proving ground, but the engine must demonstrate calibration at every horizon where it will price derivatives. A construction delay derivative that triggers on 14-day accumulated rainfall, or a PPA shortfall derivative that triggers on 30-day irradiance deficit, requires proven calibration at those timescales.

The further into the future the horizon extends, the larger the delta between naive historical-data-based predictions and a well-calibrated engine — and the more valuable the derivative. Daily proves the method. Medium-range is where the commercial product lives and where nobody else operates.