The Black-Scholes Equation for Weather Derivatives

7 Pages Posted: 29 Sep 2003

See all articles by Stephen Jewson

Stephen Jewson

Risk Management Solutions

Mihail Zervos

King’s College London - Department of Mathematics

Date Written: August 16, 2003

Abstract

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

Jewson, Stephen and Zervos, Mihail, The Black-Scholes Equation for Weather Derivatives (August 16, 2003). Available at SSRN: https://ssrn.com/abstract=436282 or http://dx.doi.org/10.2139/ssrn.436282

Stephen Jewson (Contact Author)

Risk Management Solutions ( email )

London EC3R 8NB
United Kingdom

Mihail Zervos

King’s College London - Department of Mathematics ( email )

Strand
Strand
London, WC2R 2LS
United Kingdom

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