The Relative Importance of Trends, Distributions and the Number of Years of Data in the Pricing of Weather Options
13 Pages Posted: 13 Apr 2004
Date Written: March 11, 2004
Certain methods for the pricing of weather options involve the modelling of trends and distributions of weather indices using historical meteorological data. We address the question of whether the sensitivity of the expected payoff to choice of trend is greater or less than the sensitivity to the choice of distribution or the number of years of data used.
Keywords: Weather derivatives, weather options, trends, distributions, actuarial pricing
JEL Classification: G12
Suggested Citation: Suggested Citation