WEATHER DERIVATIVES: MANAGING RISK WITH MARKET-BASED INSTRUMENTS

Accurate pricing of weather derivatives is critically dependent upon correct specification of the underlying weather process. We test among six likely alternative processes using maximum likelihood methods and data from the Fresno, CA weather station. Using these data, we find that the best process is a mean-reverting geometric Brownian process with discrete jumps and ARCH errors. We describe a pricing model for weather derivatives based on such a process.

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Year of publication:	2002
Authors:	Richards, Timothy J. ; Manfredo, Mark R. ; Sanders, Dwight R.
Institutions:	NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management
Subject:	Risk and Uncertainty

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Extent:	application/pdf
Series:	2002 Conference, April 22-23, 2002, St. Louis, Missouri.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series 2002 Conference, St. Louis, Missouri, April 22-23 Number 19074
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005807443