Pricing temperature-based weather contracts: an application to China

Ahmet Goncu

Applied Economics Letters, 2011, vol. 18, issue 14, 1349-1354

Abstract: This article is the first study to price temperature-based weather derivatives based on the daily average temperatures of Chinese cities, namely Beijing, Shanghai and Shenzhen. A dynamic model with a piecewise constant volatility function, proposed by Alaton et al. (2002), is used for pricing Heating Degree Days (HDD) and Cooling Degree Days (CDD) options. Price estimates for these options are obtained using Monte Carlo simulation and analytical approximation methods.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:18:y:2011:i:14:p:1349-1354

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DOI: 10.1080/13504851.2010.537619

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