Modeling and Forecasting Average Temperature for Weather Derivative Pricing
The main purpose of this paper is to present a feasible model for the daily average temperature on the area of Zhengzhou and apply it to weather derivatives pricing. We start by exploring the background of weather derivatives market and then use the 62 years of daily historical data to apply the mea...
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| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
2015-01-01
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| Series: | Advances in Meteorology |
| Online Access: | http://dx.doi.org/10.1155/2015/837293 |
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| _version_ | 1849306980447944704 |
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| author | Zhiliang Wang Peng Li Lingyong Li Chunyan Huang Min Liu |
| author_facet | Zhiliang Wang Peng Li Lingyong Li Chunyan Huang Min Liu |
| author_sort | Zhiliang Wang |
| collection | DOAJ |
| description | The main purpose of this paper is to present a feasible model for the daily average temperature on the area of Zhengzhou and apply it to weather derivatives pricing. We start by exploring the background of weather derivatives market and then use the 62 years of daily historical data to apply the mean-reverting Ornstein-Uhlenbeck process to describe the evolution of the temperature. Finally, Monte Carlo simulations are used to price heating degree day (HDD) call option for this city, and the slow convergence of the price of the HDD call can be found through taking 100,000 simulations. The methods of the research will provide a frame work for modeling temperature and pricing weather derivatives in other similar places in China. |
| format | Article |
| id | doaj-art-248d163fc18b4166bac87bfcf2ba06f7 |
| institution | Kabale University |
| issn | 1687-9309 1687-9317 |
| language | English |
| publishDate | 2015-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Advances in Meteorology |
| spelling | doaj-art-248d163fc18b4166bac87bfcf2ba06f72025-08-20T03:54:53ZengWileyAdvances in Meteorology1687-93091687-93172015-01-01201510.1155/2015/837293837293Modeling and Forecasting Average Temperature for Weather Derivative PricingZhiliang Wang0Peng Li1Lingyong Li2Chunyan Huang3Min Liu4School of Science of North China, University of Water Resources and Electric Power, Zhengzhou 450045, ChinaSchool of Science of North China, University of Water Resources and Electric Power, Zhengzhou 450045, ChinaAgriculture Water Resources Section, Water Resources Department of Henan Province, Zhengzhou 450003, ChinaSchool of Science of North China, University of Water Resources and Electric Power, Zhengzhou 450045, ChinaSchool of Science of North China, University of Water Resources and Electric Power, Zhengzhou 450045, ChinaThe main purpose of this paper is to present a feasible model for the daily average temperature on the area of Zhengzhou and apply it to weather derivatives pricing. We start by exploring the background of weather derivatives market and then use the 62 years of daily historical data to apply the mean-reverting Ornstein-Uhlenbeck process to describe the evolution of the temperature. Finally, Monte Carlo simulations are used to price heating degree day (HDD) call option for this city, and the slow convergence of the price of the HDD call can be found through taking 100,000 simulations. The methods of the research will provide a frame work for modeling temperature and pricing weather derivatives in other similar places in China.http://dx.doi.org/10.1155/2015/837293 |
| spellingShingle | Zhiliang Wang Peng Li Lingyong Li Chunyan Huang Min Liu Modeling and Forecasting Average Temperature for Weather Derivative Pricing Advances in Meteorology |
| title | Modeling and Forecasting Average Temperature for Weather Derivative Pricing |
| title_full | Modeling and Forecasting Average Temperature for Weather Derivative Pricing |
| title_fullStr | Modeling and Forecasting Average Temperature for Weather Derivative Pricing |
| title_full_unstemmed | Modeling and Forecasting Average Temperature for Weather Derivative Pricing |
| title_short | Modeling and Forecasting Average Temperature for Weather Derivative Pricing |
| title_sort | modeling and forecasting average temperature for weather derivative pricing |
| url | http://dx.doi.org/10.1155/2015/837293 |
| work_keys_str_mv | AT zhiliangwang modelingandforecastingaveragetemperatureforweatherderivativepricing AT pengli modelingandforecastingaveragetemperatureforweatherderivativepricing AT lingyongli modelingandforecastingaveragetemperatureforweatherderivativepricing AT chunyanhuang modelingandforecastingaveragetemperatureforweatherderivativepricing AT minliu modelingandforecastingaveragetemperatureforweatherderivativepricing |