Model Comparison for Temperature-based Weather Derivatives in Mainland China

Lu Zong and Manuela Ender

No 332293, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: In this paper, we provide a comprehensive comparison of two models for the simulation and pricing of temperature-based weather derivatives. The model of Alaton et al (2002) and the CAR model of Benth et al (2007) are applied to temperature data from twelve cities in Mainland China. The objective of this paper is to analyse whether the CAR model, as a more advanced model has a better performance in fitting the daily average temperature (DAT). A higher accuracy of the CAR model can be found indeed in terms of normality of residuals and in terms of smaller relative errors. However, the shortcomings of both models are revealed in this study as well. The Chinese cities involved cover all seven climatic zones in the standard of climatic regionalization that is used as a partition of China to get representative clusters.

Keywords: Environmental Economics and Policy; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 27
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332293

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