Download This PaperPricing Temperature Derivatives under Weather Forecasts
29 Pages Posted: 20 Mar 2018 Last revised: 14 Apr 2020
Date Written: July 17, 2018
Abstract
We investigate the pricing of temperature derivatives under weather forecasts modeled by enlarged filtrations. We also treat option pricing and optimal portfolio selection in temperature markets with future information. We finally prove an anticipative sufficient stochastic minimum principle and apply the result to minimal variance hedging of temperature derivatives under weather forecasts.
Keywords: Temperature Derivative, CAT Futures, Weather Forecast, Option Pricing, Optimal Portfolio Selection, Information Premium, Minimal Variance Hedging, Enlarged Filtration, Ornstein-Uhlenbeck Process, Stochastic Differential Equation, Stochastic Minimum Principle, Stochastic Control
JEL Classification: C00, C53, D52, D80, G13
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