Schiller, Frank and Seidler, Gerold and Wimmer, Maximilian (2012) Temperature models for pricing weather derivatives. QUANTITATIVE FINANCE, 12 (3). pp. 489-500. ISSN 1469-7688, 1469-7696
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We present four models for predicting temperatures that can be used for pricing weather derivatives. Three of the models have been suggested in previous literature, and we propose another model that uses splines to remove trend and seasonality effects from temperature time series in a flexible way. Using historical temperature data from 35 weather stations across the United States, we test the performance of the models by evaluating virtual heating degree days (HDD) and cooling degree days (CDD) contracts. We find that all models perform better when predicting HDD indices than predicting CDD indices. However, all models based on a daily simulation approach significantly underestimate the variance of the errors.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | SURFACE AIR-TEMPERATURE; VALUATION; Weather derivative pricing; Stochastic processes; Temperature dynamics; Daily simulation |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 25 May 2020 08:50 |
| Last Modified: | 25 May 2020 08:50 |
| URI: | https://pred.uni-regensburg.de/id/eprint/19510 |
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