Journal ArticleDOI
On modelling and pricing weather derivatives
TLDR
In this article, the main objective of the work described is to find a pricing model for weather derivatives with payouts depending on temperature, using historical data to suggest a stochastic process that describes the evolution of the temperature.Abstract:
The main objective of the work described is to find a pricing model for weather derivatives with payouts depending on temperature. Historical data are used to suggest a stochastic process that describes the evolution of the temperature. Since temperature is a non-tradable quantity, unique prices of contracts in an incomplete market are obtained using the market price of risk. Numerical examples of prices of some contracts are presented, using an approximation formula as well as Monte Carlo simulations.read more
Citations
More filters
Journal ArticleDOI
Stochastic Modelling of Temperature Variations with a View Towards Weather Derivatives
TL;DR: In this article, daily average temperature variations are modelled with a mean-reverting Ornstein-Uhlenbeck process driven by a generalized hyperbolic Levy process and having seasonal mean and volatility.
Journal ArticleDOI
The volatility of temperature and pricing of weather derivatives
TL;DR: In this article, an Ornstein-Uhlenbeck process with seasonal volatility was used to model the time dynamics of daily average temperatures in Stockholm, one of the European cities for which there is a trade in weather futures and options on the Chicago Mercantile Exchange.
Journal ArticleDOI
Pricing Weather Derivatives
TL;DR: In this article, a general method for pricing weather derivatives is presented, based on a mean-reverting Brownian motion process with discrete jumps and autoregressive conditional heteroscedastic errors.
Journal ArticleDOI
Putting a Price on Temperature
TL;DR: In this article, a continuous-time autoregressive process with lag p and sea- sonal variation is proposed to model the temperature dynamics in CME futures and options written on different temperature indices.
Journal ArticleDOI
Enhancing microfinance using index‐based risk‐transfer products
Jerry R. Skees,Barry J. Barnett +1 more
TL;DR: In this paper, the authors reviewed how innovative index-based risk transfer products (IBRTPs) can be used to transfer the correlated natural disaster risks that often hamper the development of farm-level microcredit.
References
More filters
Book
Time Series: Theory and Methods
TL;DR: In this article, the mean and autocovariance functions of ARIMA models are estimated for multivariate time series and state-space models, and the spectral representation of the spectrum of a Stationary Process is inferred.
Journal ArticleDOI
Stochastic differential equations : an introduction with applications
TL;DR: Some Mathematical Preliminaries as mentioned in this paper include the Ito Integrals, Ito Formula and the Martingale Representation Theorem, and Stochastic Differential Equations.
Book
Arbitrage Theory in Continuous Time
TL;DR: In this article, the Martingale Approach to Arbitrage theory is used to model the Binomial Model and the Stochastic Optimal Control (SOC) model for short-term interest rates.
Journal ArticleDOI
Time Series: Theory and Methods (2nd ed.).
Journal ArticleDOI
Martingale estimation functions for discretely observed diffusion processes
Bo Martin Bibby,Michael Sørensen +1 more
TL;DR: In this paper, the authors consider three different martingale estimating functions based on discrete-time observations of a diffusion process and show that all three estimators result in consistent and asymptotically normally distributed estimators when the underlying diffusion is ergodic.