Dorfleitner, Gregor and Wimmer, Maximilian (2010) The pricing of temperature futures at the Chicago Mercantile Exchange. JOURNAL OF BANKING & FINANCE, 34 (6). pp. 1360-1370. ISSN 0378-4266, 1872-6372
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This paper analyzes observed prices of US temperature futures at the Chicago Mercantile Exchange (CME). Results show that an index modeling approach without detrending captures the prices exceptionally well. Moreover, weather forecasts significantly influence prices up to 11 days ahead. It is shown that valuations of temperature futures relying on a model without detrending yield biased valuations by over-pricing winter contracts and underpricing summer contracts. Several trading strategies are devised to exploit the mispricing observed at the CME and to demonstrate that speculating on temperature futures can not only generate high overall returns, but also perform well on a risk-adjusted basis. (C) 2009 Elsevier B.V. All rights reserved.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | SURFACE AIR-TEMPERATURE; WEATHER DERIVATIVES; STOCK RETURNS; SHARPE RATIO; VALUATION; FORECASTS; SELECTION; Weather derivatives; Index modeling; Weather forecast; Futures pricing; Trading strategy |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Betriebswirtschaftslehre > Lehrstuhl für Finanzierung (Prof. Dr. Gregor Dorfleitner) |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 29 Jul 2020 07:13 |
| Last Modified: | 29 Jul 2020 07:13 |
| URI: | https://pred.uni-regensburg.de/id/eprint/24625 |
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