Pricing temperature-based weather contracts: An application to China

Ahmet Goncu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

This article is the first study to price temperature-based weather derivatives based on the daily average temperatures of Chinese cities, namely Beijing, Shanghai and Shenzhen. A dynamic model with a piecewise constant volatility function, proposed by Alaton et al. (2002), is used for pricing Heating Degree Days (HDD) and Cooling Degree Days (CDD) options. Price estimates for these options are obtained using Monte Carlo simulation and analytical approximation methods.

Original languageEnglish
Pages (from-to)1349-1354
Number of pages6
JournalApplied Economics Letters
Volume18
Issue number14
DOIs
Publication statusPublished - Sept 2011
Externally publishedYes

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