Risk Loading and Implied Volatility in the Pricing of Weather Options

12 Pages Posted: 30 Dec 2003

Date Written: December 20, 2003

Abstract

Observed weather option prices can be interpreted using either a Black-Scholes type model with implied volatility, or an insurance based pricing approach with risk-loading. We study the relationship between the two.

Keywords: Weather, weather derivatives, implied volatility, implied standard deviation, risk loading

JEL Classification: G13

Suggested Citation

Jewson, Stephen, Risk Loading and Implied Volatility in the Pricing of Weather Options (December 20, 2003). Available at SSRN: https://ssrn.com/abstract=481905 or http://dx.doi.org/10.2139/ssrn.481905

Stephen Jewson (Contact Author)

Risk Management Solutions ( email )

London EC3R 8NB
United Kingdom

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