Pricing summer day options by good-deal bounds

Takashi Kanamura and Kazuhiko Ohashi

Energy Economics, 2009, vol. 31, issue 2, 289-297

Abstract: Despite the worldwide popularity of CDD- and HDD-type weather derivatives based on temperature, a different class of weather derivatives, so-called summer day options, is more popular in Japan; the payoffs are determined by the number of summer days (i.e., the days whose average temperature is above 25 °C) during the contract period. In this paper, we price such summer day options by the good-deal bounds of Cochrane and Saa-Requejo [Cochrane, J.H., and J. Saa-Requejo, 2000, Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets, Journal of Political Economy 108, 79-119.], using temperature data for Tokyo.

Keywords: Weather; derivatives; Incomplete; markets; Good-deal; bounds; Summer; days; Cooling; degree; days (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:31:y:2009:i:2:p:289-297

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