Show Summary Details

Page of

PRINTED FROM OXFORD HANDBOOKS ONLINE (www.oxfordhandbooks.com). (c) Oxford University Press, 2015. All Rights Reserved. Under the terms of the licence agreement, an individual user may print out a PDF of a single chapter of a title in Oxford Handbooks Online for personal use (for details see Privacy Policy).

date: 26 September 2017

Abstract and Keywords

Forecasting based pricing of weather derivatives (WDs) is a new approach in valuation of contingent claims on nontradable underlyings. Standard techniques are based on historical weather data, so that forward-looking information such as meteorological forecasts or the implied market price of risk (MPR) are often not incorporated. We adopt a risk neutral approach that allows the incorporation of meteorological forecasts in the framework of WD pricing. Weather risk premiums (RPs) are implied from either the information MPR gain or the meteorological forecasts. RP size is interesting for investors and issuers of weather contracts to take advantages of geographic diversification, hedging effects and price determinations. Incorporating either the MPR or forecasts outperforms the standard pricing techniques.

Keywords: forecast JEL classification: G19, G29, G22, N23, N53, Q59, risk premia, seasonal variation, temperature, weather derivatives

Access to the complete content on Oxford Handbooks Online requires a subscription or purchase. Public users are able to search the site and view the abstracts and keywords for each book and chapter without a subscription.

Please subscribe or login to access full text content.

If you have purchased a print title that contains an access token, please see the token for information about how to register your code.

For questions on access or troubleshooting, please check our FAQs, and if you can''t find the answer there, please contact us.