The Black-Scholes Equation for Weather Derivatives
7 Pages Posted: 29 Sep 2003
Date Written: August 16, 2003
We show how the Black and Scholes (1973) and Black (1976) partial differential equations can be adapted for the pricing of weather options that are hedged using weather swaps.
Keywords: weather, derivatives, weather derivatives, Black-Scholes, Black, arbitrage, weather swaps, balanced market model
JEL Classification: G12, G13
Suggested Citation: Suggested Citation