On modelling and pricing weather derivatives
Top Cited Papers
- 1 March 2002
- journal article
- research article
- Published by Taylor & Francis in Applied Mathematical Finance
- Vol. 9 (1) , 1-20
- https://doi.org/10.1080/13504860210132897
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.Keywords
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