Weather derivatives pricing and risk management applications

Anzilotti, Luca

http://hdl.handle.net/10362/102625

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Autores

Anzilotti, Luca

Orientador(es)

Pereira, João Pedro

Resumo(s)

The main objective of this paper is to discuss suitable methods for the modelling of weather variables and to bring together much of the current thinking in terms of the pricing of their respective derivative contracts (CDD, HDD) with payoffs depending on temperature. In addition to the theoretical overview provided, an empirical investigation is undertaken using historical data from the De Bilt meteorological station: we use the aforementioned data to first suggest a stochastic process that describes the evolution of the temperature. Further, such temperature modelling phase is accompanied by the numerical technique of Monte Carlo simulation for derivatives pricing. Finally, we will analyse some weather-sensitive industries and discuss possible weather hedging strategies they could apply.