Hedging of Spatial Temperature Risk with Market-Traded Futures

Andrea Barth, Fred Espen Benth and Jurgen Potthoff

Applied Mathematical Finance, 2011, vol. 18, issue 2, 93-117

Abstract: The main objective of this work is to construct optimal temperature futures from available market-traded contracts to hedge spatial risk. Temperature dynamics are modelled by a stochastic differential equation with spatial dependence. Optimal positions in market-traded futures minimizing the variance are calculated. Examples with numerical simulations based on a fast algorithm for the generation of random fields are presented.

Keywords: Temperature futures; Hedging; Spatio-temporal random fields; Heating and cooling degree-days; Stochastic simulation (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/13504861003722385 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apmtfi:v:18:y:2011:i:2:p:93-117

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAMF20

DOI: 10.1080/13504861003722385

Access Statistics for this article

Applied Mathematical Finance is currently edited by Professor Ben Hambly and Christoph Reisinger

More articles in Applied Mathematical Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().