English, Article edition: The pricing of degree-day weather options Calum G. Turvey

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Physical Description
  • article
Language
  • English

Edition details

Title
  • The pricing of degree-day weather options
Author
  • Calum G. Turvey
Physical Description
  • article
Notes
  • This paper presents a model and framework for pricing degree-day weather derivatives when the weather variable is a non-traded asset. Using daily weather data from 1840S1996, it is shown that a degree-day weather index exhibits stable volatility and satisfies the random walk hypothesis. The options prices from the recommended model are compared to a typical insurance-type model. The results show that the insurance model overprices the option value at-the-money, and this may explain why the bid-ask spread in the weather derivatives market is sometimes very large.
  • Degree-day options, Weather derivatives, Weather risk
  • RePEc:eme:afrpps:v:65:y:2005:i:1:p:59-85
Language
  • English
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