Optimal Year Ahead Forecasting of Temperature in the Presence of a Linear Trend, and the Pricing of Weather Derivatives
10 Pages Posted: 13 Jul 2004
Date Written: July 12, 2004
We consider the question of how to predict air temperatures a year in advance. We introduce a new prediction scheme that generalizes the standard flat line and best fit linear trend models and gives RMSE optimal predictions when the real trend is linear.
Keywords: Weather derivatives, trends, global warming, climate change
JEL Classification: G12, G13
Suggested Citation: Suggested Citation