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    Alternative approaches to weather derivative valuation

    Geman, Helyette and Leonardi, M.‐P. (2005) Alternative approaches to weather derivative valuation. Managerial Finance 31 (6), pp. 46-72. ISSN 0307-4358.

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    The goal of the paper is to analyse the various issues attached to the valuation of weather derivatives. We focus our study on temperature‐related contracts since they are the most widely traded at this point and try to address the following questions: (i) should the quantity underlying the swaps or options contracts be defined as the temperature, degree‐days or cumulative degree‐days? This discussion is conducted both in terms of the robustness of the statistical modelling of the state variable and the mathematical valuation of the option (European versus Asian). (ii) What pricing approaches can tackle the market incompleteness generated by a non‐tradable underlying when furthermore the market price of risk is hard to identify in other traded instruments and unlikely to be zero? We illustrate our study on a database of temperatures registered at Paris Le Bourget and compare the calls and puts prices obtained using the different methods most widely used in weather markets


    Item Type: Article
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Sarah Hall
    Date Deposited: 02 Jun 2020 16:41
    Last Modified: 02 Jun 2020 16:41


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