Closed-Form Expressions for the Beta of a Weather Derivative Portfolio
16 Pages Posted: 16 Jan 2004
Date Written: January 11, 2004
We derive closed-form expressions for the regression coefficients between uncapped weather swaps and options and a single weather swap or weather index. The regression coefficient between a portfolio of weather swaps and options and a single weather swap is then a simple extension. This allows fast and precise calculation of the variance minimising swap hedge for a portfolio of weather derivatives.
Keywords: Weather derivatives, hedging, beta
JEL Classification: G13
Suggested Citation: Suggested Citation