A critical view on temperature modelling for application in weather derivatives markets

Jūratė Šaltytė Benth and Fred Espen Benth

Energy Economics, 2012, vol. 34, issue 2, 592-602

Abstract: In this paper we present a stochastic model for daily average temperature. The model contains seasonality, a low-order autoregressive component and a variance describing the heteroskedastic residuals. The model is estimated on daily average temperature records from Stockholm (Sweden). By comparing the proposed model with the popular model of Campbell and Diebold (2005), we point out some important issues to be addressed when modelling the temperature for application in weather derivatives market.

Keywords: Temperature; Time series model; Weather derivatives; Seasonality; GARCH (search for similar items in EconPapers)
JEL-codes: C18 C51 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:34:y:2012:i:2:p:592-602

DOI: 10.1016/j.eneco.2011.09.012

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