Pricing Summer Days Options by Good - Deal Bounds

29 Pages Posted: 20 Nov 2007

See all articles by Takashi Kanamura

Takashi Kanamura

Kyoto University - Graduate School of Advanced Integrated Studies in Human Survivability (GSAIS)

Kazuhiko Ohashi

Hitotsubashi University - Graduate School of International Corporate Strategy

Date Written: November 16, 2007

Abstract

Despite the worldwide popularity of CDD- and HDD-type weather derivatives on temperature, a different class of weather derivatives, the so-called summer days options, is more popular in Japan, whose payoffs are determined by the number of summer days (i.e., the days whose average temperature is above 25 Celsius) during the contract period. In this paper, we price such summer days options by the Good-Deal Bounds of Cochrane and Saa-Requejo (2000), using the temperature data in Tokyo. We then compare the summer days options with the CDD options.

Keywords: Weather derivatives, Incomplete markets, Good - deal bounds, Summer days

JEL Classification: G13, L94, Q41

Suggested Citation

Kanamura, Takashi and Ohashi, Kazuhiko, Pricing Summer Days Options by Good - Deal Bounds (November 16, 2007). Available at SSRN: https://ssrn.com/abstract=1031323 or http://dx.doi.org/10.2139/ssrn.1031323

Takashi Kanamura

Kyoto University - Graduate School of Advanced Integrated Studies in Human Survivability (GSAIS) ( email )

1, Yoshida-Nakaadachi-cho, Sakyo-ku,
Kyoto, 606-8306
Japan
81-75-762-2004 (Phone)
81-75-762-2004 (Fax)

Kazuhiko Ohashi (Contact Author)

Hitotsubashi University - Graduate School of International Corporate Strategy ( email )

Tokyo 101-8439, Chiyoda-ku
Japan

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