Horizon Value at Risk for Weather Derivatives Part 1: Single Contracts

18 Pages Posted: 14 Dec 2003

Date Written: December 9, 2003

Abstract

We describe two methods for the calculation of horizon value at risk for single weather derivative contracts. Both methods are based on the volatility of the stochastic process for the expected index. The simpler of the two methods involves a linearisation, and is only appropriate for short horizons. The more complex method is appropriate for any horizon, and coincides with the expiry value at risk when the horizon coincides with expiry.

Keywords: weather, weather derivatives, value at risk, horizon value at risk

JEL Classification: G13

Suggested Citation

Jewson, Stephen, Horizon Value at Risk for Weather Derivatives Part 1: Single Contracts (December 9, 2003). Available at SSRN: https://ssrn.com/abstract=477585 or http://dx.doi.org/10.2139/ssrn.477585

Stephen Jewson (Contact Author)

Risk Management Solutions ( email )

London EC3R 8NB
United Kingdom

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