Climate Risk Management: the Case of Tropical Cyclones
نویسندگان
چکیده
Global warming has induced an increasing number of deadly tropical cyclones with a continuing trend. Developing high-functional climate risk management tools in forecasting, catastrophe modeling, pricing and hedging is crucial to curtail destruction. We develop a hurricane futures and futures-option pricing model in a doubly-binomial framework with stochastic news arrival intensity, and a corresponding dynamic marketconsensus forward-looking hurricane forecasting model by using transactional price changes of traded hurricane derivative contracts as the predictor. Our model can forecast when a hurricane will make landfall, how destructive it will be, and how this destructive power will evolve from inception to landfall.
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