The prevalence of commercial activities whose profit and cost are correlated with weather risk makes weather derivatives valuable financial instruments that enable hedging of price or volumetric (quantity) risk in many industries. This paper proposes a multi-period equilibrium pricing model for weather derivative. In our stylized economy representative agents of weather-sensitive industries opt...

The aim of this paper is to point out some problems of index estimation for the purposes of weather derivative valuation considering the particularities of agriculture. The assessment of the sensitivity of barley to weather over 40 years has been the basis for the design and valuation of weather derivative in the Czech Republic (The Southern Moravia Region). The analysis is based on regression ...

This paper proposes a consistent approach to the pricing of weather derivatives. Since weather derivatives are traded in an incomplete market setting, standard hedging based pricing methods cannot be applied. The growth optimal portfolio, which is interpreted as a world stock index, is used as a benchmark or numeraire such that all benchmarked derivative price processes are martingales. No meas...

Weather derivatives enable energy companies to protect themselves against weather risk. Weather ensemble predictions are generated from atmospheric models and consist of multiple future scenarios for a weather variable. They can be used to forecast the density of the payoff from a weather derivative. The mean of the density is the fair price of the derivative, and the distribution about the mea...

The hedging of weather risks has become extremely relevant in recent years, promoting the diffusion of weather derivative contracts. The pricing of such contracts require the development of appropriate models for the prediction of the underlying weather variables. Within this framework, we present a modification of the double long memory ARFIMA-FIGARCH model introducing time-varying memory coef...

The purpose of this study is to develop a model that accurately describes the dynamics of the daily average temperature in the context of weather derivatives pricing. More precisely we compare two state of the art algorithms, namely wavelet networks and genetic programming against the classic linear approaches widely using in the contexts of temperature derivative pricing. The accuracy of the v...

SPRING 2000 T he impact of weather on business activities is enormous and varies both geographically and seasonally. For example, the 1982-1983 and 1997-1998 El Niño conditions were associated with warm winters in the eastern and midwestern U.S., resulting in significant energy cost savings for consumers and businesses. In addition, these conditions suppressed hurricane activities in the Atlant...