Weather Derivatives and Stochastic Modelling of Temperature

By Fred Espen Benth, J. Šaltytė Benth. 2011

47 citations recorded by the source corpus.

We propose a continuous-time autoregressive model for the temperature dynamics with volatility being the product of a seasonal function and a stochastic process. We use the Barndorff-Nielsen and Shephard model for the stochastic volatility. The proposed temperature dynamics is flexible enough to model temperature data accurately, and at the same time being analytically tractable. Futures prices for commonly traded contracts at the Chicago Mercantile Exchange on indices like cooling- and heating-degree days and cumulative average temperatures are computed, as well as option prices on them.

Subfields: Demography, Finance

View Paper: https://www.semanticscholar.org/paper/21597fef18baf5097069fd69b4c404390118b484

Citations in the corpus

• Localizing Temperature Risk (2016, unknown): “Please refer to Benth and Benth (2012) for a detailed discussion of the di erences between those two models.”