accurate fitting procedure of localised temperature risk process by achieving excellent normal risk factors. -- Weather …On the temperature derivative market, modeling temperature volatility is an important issue for pricing and hedging. In … order to apply pricing tools of financial mathematics, one needs to isolate a Gaussian risk factor. A conventional model for …

We focus on two particular aspects of model risk: the inability of a chosen model to fit observed market prices at a … given point in time (calibration error) and the model risk due to the recalibration of model parameters (in contradiction to … model risk in a common framework, and consider the trade-offs between them when choosing a model and the frequency with …