Weather Derivative Pricing and the Distributions of Standard Weather Indices on Us Temperatures

9 Pages Posted: 27 Apr 2004

Date Written: April 27, 2004

Abstract

The standard indices used in the US weather derivatives market are based on monthly and seasonal heating degree days in winter and monthly and seasonal cooling degree days in summer. The pricing of weather options necessitates estimating the distribution of possible values for these indices. We assess to what extent it is safe to assume that these distributions can be modelled using a normal distribution.

Keywords: Weather derivatives, index distributions, normal distribution, non-normality

JEL Classification: G13

Suggested Citation

Jewson, Stephen, Weather Derivative Pricing and the Distributions of Standard Weather Indices on Us Temperatures (April 27, 2004). Available at SSRN: https://ssrn.com/abstract=535982 or http://dx.doi.org/10.2139/ssrn.535982

Stephen Jewson (Contact Author)

Risk Management Solutions ( email )

London EC3R 8NB
United Kingdom

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