Download or read book Arbitrage Pricing of Weather Derivatives and the Stochastic Process for the Expectation of Non Linear Weather Indices written by Stephen Jewson and published by . This book was released on 2004 with total page 5 pages. Available in PDF, EPUB and Kindle. Book excerpt: We consider the question of how to derive a stochastic process for the expectation of a non-linear weather index. Under various reasonable assumptions we show that the stochastic process is a deterministic function of Brownian motion. This generalises earlier results which only applied to linear weather indices, and makes it possible to derive arbitrage prices for options written on swaps that settle on such a non-linear index.
Download or read book Weather Derivative Valuation written by Stephen Jewson and published by Cambridge University Press. This book was released on 2005-03-10 with total page 393 pages. Available in PDF, EPUB and Kindle. Book excerpt: Originally published in 2005, Weather Derivative Valuation covers all the meteorological, statistical, financial and mathematical issues that arise in the pricing and risk management of weather derivatives. There are chapters on meteorological data and data cleaning, the modelling and pricing of single weather derivatives, the modelling and valuation of portfolios, the use of weather and seasonal forecasts in the pricing of weather derivatives, arbitrage pricing for weather derivatives, risk management, and the modelling of temperature, wind and precipitation. Specific issues covered in detail include the analysis of uncertainty in weather derivative pricing, time-series modelling of daily temperatures, the creation and use of probabilistic meteorological forecasts and the derivation of the weather derivative version of the Black-Scholes equation of mathematical finance. Written by consultants who work within the weather derivative industry, this book is packed with practical information and theoretical insight into the world of weather derivative pricing.
Download or read book The Pricing of Weather Derivatives including Meteorological Forecasts written by Elena Parmigiani and published by GRIN Verlag. This book was released on 2014-02-24 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2013 in the subject Business economics - Investment and Finance, grade: 4/4, , language: English, abstract: 1. Abstract This paper analyses weather derivatives and the issue of pricing these financial instruments. The non-tradability of the underlying makes their pricing not straightforward and even if the Chicago Mercantile Exchange began trading the first weather contract in 1999, the market still witnesses very low volumes and is relatively illiquid. This theoretical analysis is focused on instruments whose underlying is temperature, since they are the most traded. Due to the assumption of informational efficient markets, all available information should theoretically be included in the prices. However most existing models focus only on historical observations of temperature, actually excluding some relevant information. The few models that have instead considered weather forecasts are analysed, and in particular the model introduced by Ritter, Musshoff, and Odening to price temperature monthly futures including weather forecasts is described in details. I’ve performed an analysis applying a simplified version of the model described, based on temperature data from Tampa, Florida, in 2007. The results show that models with meteorological forecasts indeed outperform models that ignore them.
Download or read book The Use of Weather Forecasts in the Pricing of Weather Derivatives written by Stephen Jewson and published by . This book was released on 2003 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We discuss how weather forecasts can be used in the pricing of weather derivatives and derive results for the most important types of weather index and contract. We show that calculating the expected payoff of linear contracts on linear indices requires only forecasts of the mean temperature over the contract period. Calculating the expected payoff of linear contracts on non-linear indices requires forecasts of both the mean and the distribution of temperatures, but not of the dependence between temperature distributions on different days. Calculating the expected payoff of non-linear contracts requires forecasts of the full multivariate distribution of temperature over the whole contract. For contracts that extend beyond the end of the available forecasts, correlations between the forecast and the post-forecast periods must be taken into account when estimating this distribution. We present two methods by which this can be achieved, both of which combine information from climatological models of daily temperature with information from probabilistic forecasts.
Download or read book Horizon Value at Risk for Weather Derivatives Part 1 written by Stephen Jewson and published by . This book was released on 2003 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: We describe two methods for the calculation of horizon value at risk for single weather derivative contracts. Both methods are based on the volatility of the stochastic process for the expected index. The simpler of the two methods involves a linearisation, and is only appropriate for short horizons. The more complex method is appropriate for any horizon, and coincides with the expiry value at risk when the horizon coincides with expiry.
Download or read book Horizon Value at Risk for Weather Derivatives Part 2 written by Stephen Jewson and published by . This book was released on 2004 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: We describe two methods for the calculation of horizon value at risk for portfolios of weather derivative contracts. Both methods are based on stochastic processes for the expected indices of the contracts. The simpler of the two methods involves a linearisation, and is only appropriate for short horizons. The more complex of the two methods is appropriate for any horizon, and coincides with the expiry value at risk when the horizon coincides with expiry.
Download or read book Closed Form Expressions for the Pricing of Weather Derivatives written by Stephen Jewson and published by . This book was released on 2008 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive closed-form expressions for the expected payoff of weather derivatives contracts for a t distributed weather index. There are three common situations in which t distributions might serve as a reasonable model for weather indices: first, some weather variables may be t distributed; second the t distribution can be used as a fatter-tailed alternative to the normal distribution as a stress test or model alternative;and third, objective Bayesian predictions of normally distributed data are t distributed.
Download or read book Weather Derivative Pricing with Nonlinear Weather Forecasting written by Gal Zahavi and published by . This book was released on 2014 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years we witnessed a rapid growth of weather derivatives market. These derivatives are used to hedge energy contracts and distribute weather risk. While most derivative markets are complete and contingent climes replications are standard procedure, this special market is incomplete, and therefore modeling the weather is a more appropriate approach to pricing. In this work we base our modeling on a widely accepted physical approach, we use Navier-Stokes equations applied to a thin atmosphere as presented by Lorentz 1962. This modeling is considered by meteorologists a “very-long-weather” prediction, allows for an accurate and robust temperature forecasting. We show that under this setting we empirically outperform the standard approach to weather derivative pricing.
Download or read book Weather Derivative Pricing and the Distributions of Standard Weather Indices on Us Temperatures written by Stephen Jewson and published by . This book was released on 2004 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: The standard indices used in the US weather derivatives market are based on monthly and seasonal heating degree days in winter and monthly and seasonal cooling degree days in summer. The pricing of weather options necessitates estimating the distribution of possible values for these indices. We assess to what extent it is safe to assume that these distributions can be modelled using a normal distribution.
Download or read book Closed Form Expressions for the Pricing of Weather Derivatives written by Stephen Jewson and published by . This book was released on 2003 with total page 5 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive closed-form expressions for the variance of the payoff of a number of types of weather derivative contract under the assumption of a gamma distributed settlement index.
Download or read book Weather Derivative Pricing and the Normal Distribution written by Stephen Jewson and published by . This book was released on 2006 with total page 7 pages. Available in PDF, EPUB and Kindle. Book excerpt: The normal distribution is commonly used to predict weather indices when pricing weather derivatives. The standard method for making such predictions involves calculating an unbiased estimator for the population variance. The variance of the prediction (the predictive variance) is then the unbiased estimator for the population variance with an adjustment to account for sampling error on the mean. This is not, however, the only way to model the predictive variance, and it is not necessarily the best way. We investigate an alternative method, based on adjusting the predictive variance so as to maximise the expected predictive log-likelihood. For the small sample sizes often used in weather derivative pricing the resulting predictive variances are significantly larger than those calculated using the standard method.
Download or read book Pricing of Weather Derivatives written by Shih-Ying Lee and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing of Weather Derivatives written by Anandadeep Mandal and published by LAP Lambert Academic Publishing. This book was released on 2010-12 with total page 76 pages. Available in PDF, EPUB and Kindle. Book excerpt: The performance of many firms are exposed to the changes in weather. The industry sectors exposed to 'weather risk' are basic materials, consumer durables and agricultural industries. Amongst these the basic materials has mainly triggered the demand for the weather derivatives market and the rapid growth in the weather risk assessment industry. With this as the backdrop, this book formulates a pricing model for the weather derivatives, whose payoffs depend on surface air temperature. Daily temperature data for the last thirty years is closely analyzed for four cities in U.K. to model a temperature process which captures the daily temperature fluctuations including the seasonal patterns and the year-on- year up-ward trend behaviour of the temperature.This work further evaluates an arbitrage-free option pricing using a Gaussian Ornstein-Uhlenbeck model. Keeping in mind that temperature, the underlying variable of the weather derivative, is non-tradable we consider a risk premium estimator to find the price of a weather derivatives contract. Further, the book provides results based on these models as well as based on Monte Carlo Simulations.
Download or read book Closed Form Expressions for the Pricing of Weather Derivatives written by Stephen Jewson and published by . This book was released on 2003 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: We derive closed-form expressions for the expected payoff of a number of types of weather derivative contract under the assumption of a normally distributed settlement index.
Download or read book Numerical Solutions of Weather Derivatives and Other Incomplete Market Problems written by Edwin Broni-Mensah and published by . This book was released on 2012 with total page 282 pages. Available in PDF, EPUB and Kindle. Book excerpt: The valuation of weather derivatives is complex since the underlying temperature process has no negotiable price. This thesis introduces a selection of models for the valuation of weather derivative contracts, governed by a stochastic underlying temperature process. We then present a new weather pricing model, which is used to determine the fair hedging price of a weather derivative under the assumptions of mean self-financing. This model is then extended to incorporate a compensation (or market price of risk) awarded to investors who hold undiversifiable risks. This results in the derivation of a non-linear two-dimensional PDE, for which the numerical evaluation cannot be performed using standard finite-difference techniques. The numerical techniques applied in this thesis are based on a broad range of lattice based schemes, including enhancements to finite-differences, quadrature methods and binomial trees. Furthermore simulations of temperature processes are undertaken that involves the development of Monte Carlo based methods.
Download or read book Modeling and Pricing in Financial Markets for Weather Derivatives written by Fred Espen Benth and published by World Scientific. This book was released on 2013 with total page 255 pages. Available in PDF, EPUB and Kindle. Book excerpt: Weather derivatives provide a tool for weather risk management, and the markets for these exotic financial products are gradually emerging in size and importance. This unique monograph presents a unified approach to the modeling and analysis of such weather derivatives, including financial contracts on temperature, wind and rain. Based on a deep statistical analysis of weather factors, sophisticated stochastic processes are introduced modeling the time and space dynamics. Applying ideas from the modern theory of mathematical finance, weather derivatives are priced, and questions of hedging analyzed. The treatise contains an in-depth analysis of typical weather contracts traded at the Chicago Mercantile Exchange (CME), including so-called CDD and HDD futures. The statistical analysis of weather variables are based on a large data set from Lithuania. The monograph includes the research done by the authors over the last decade on weather markets. Their work has gained considerable attention, and has been applied in many contexts.
Download or read book New Methods for the Arbitrage Pricing Theory and the Present Value Model written by Jianping Mei and published by World Scientific. This book was released on 1994 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book consists of two essays on new approaches for the Arbitrage Pricing Theory and the Present Value Model, and one essay on cross-sectional correlations in panel data. The new approaches are designed to study a large number of securities over time. They can be employed by security analysts to discover market anomalies without assuming observable factors or constant risk premium. The book shows how these two approaches can be used to determine how many systematic factors affect the U.S. stock market.
