Pricing of forward contracts on temperature and wind speed

Fred Espen Benth and Jūratė Šaltytė Benth
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Fred Espen Benth: University of Oslo, Norway
Jūratė Šaltytė Benth: University of Oslo, Norway

Chapter 5 in Modeling and Pricing in Financial Markets for Weather Derivatives, 2012, pp 107-137 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractThis chapter discusses various “classical” approaches to pricing weather contracts written on temperature and wind speed. The approaches include the rational expectation hypothesis and the burn analysis. The latter does not provide a dynamical price, but can only give one constant price. We focus on the risk-neutral pricing approach including the rational expectation hypothesis as a special case, and price various contracts traded in the weather markets for temperature and wind speed.

Keywords: Weather Derivatives; Stochastic Processes; HDD; CDD; Autoregressive Moving Average Time Series; Futures Contracts; Options; Utility Pricing; Girsanov Transform; Esscher Transform; Precipitation; Temperature; Wind Speed (search for similar items in EconPapers)
Date: 2012
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