EconPapers    
Economics at your fingertips  
 

Weather forecasting for weather derivatives

Sean D. Campbell and Francis Diebold

No 2004/10, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: We take a simple time-series approach to modeling and forecasting daily average temperature in U.S. cities, and we inquire systematically as to whether it may prove useful from the vantage point of participants in the weather derivatives market. The answer is, perhaps surprisingly, yes. Time-series modeling reveals conditional mean dynamics, and crucially, strong conditional variance dynamics, in daily average temperature, and it reveals sharp differences between the distribution of temperature and the distribution of temperature surprises. As we argue, it also holds promise for producing the long-horizon predictive densities crucial for pricing weather derivatives, so that additional inquiry into time-series weather forecasting methods will likely prove useful in weather derivatives contexts.

Keywords: Risk management; hedging; insurance; seasonality; temperature; financial derivatives (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/25436/1/515150657.PDF (application/pdf)

Related works:
Journal Article: Weather Forecasting for Weather Derivatives (2005) Downloads
Working Paper: Weather Forecasting for Weather Derivatives (2003) Downloads
Working Paper: Weather Forecasting for Weather Derivatives (2002) Downloads
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:zbw:cfswop:200410

Access Statistics for this paper

More papers in CFS Working Paper Series from Center for Financial Studies (CFS) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().

 
Page updated 2025-02-07
Handle: RePEc:zbw:cfswop:200410