Pricing weather derivatives in an uncertain environment

Abstract This article deals with the problem of finding a pricing formula for weather derivatives based on temperature dynamics through an uncertain differential equation. Weather-related are being employed more frequently in alternative risk portfolios multiple asset classes. We first propose process that uses data from past to describe how has changed. Despite this, these assets is difficult since it necessitates incomplete market framework. The volatility described by truncated Fourier series, and we provide novel technique calculating this constant using Monte Carlo simulations. With approach, assumed have fixed price.