Sunshine-Factor Model with Treshold GARCH for Predicting Temperature of Weather Contracts
Helene Hamisultane ()
Working Papers from HAL
Climate changes have sparked growing interest for the weather derivatives which are financial contracts relied on a meteorological index and allowing companies to hedge against climate risk. These contracts present the particularity of providing compensation to the buyer when the meteorological index crossed a limit agreed in advance with the seller. In order to evaluate these products and to manage at best the risks associated with their exchange, it is important to be able to accurately predict the evolution of the climate variable. Several processes have been proposed in the literature to model the behaviour of the temperature which is the basis of most of the traded weather instruments. These processes relate mainly to the univariate time series modelling which is founded on the study of the autocorrelation of the stationary variable. But we know that the behaviour of the temperature can be influenced by climatic factors such as rain, wind or sunshine. In our paper, we propose to take into account the impact of sunshine on the temperature as well as the asymmetric effect of the shocks on the volatility by estimating a structural model with a periodic threshold GARCH. We show that this model provides better out-sample forecasts for 30 and 60 days ahead than those obtained by the univariate autoregressive-conditional heteroskedasticity process.
Keywords: Value-at-Risk; weather derivatives; structural model; Markov chain; threshold GARCH; Monte-Carlo simulations; Value-at-Risk. (search for similar items in EconPapers)
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00355857
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-00355857
Access Statistics for this paper
More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().