Weather Derivative Pricing and the Detrending of Meteorological Data: Closed-Form Solutions for the Behaviour of a Simple Decision Rule
7 Pages Posted: 15 Nov 2004
Date Written: November 11, 2004
One of the most important decisions to make in the actuarial pricing of weather derivatives is how to detrend the historical meteorological data record. We derive expressions for the statistical behaviour of an automatic decision rule that chooses between two of the most commonly used models: flat line and linear.
Keywords: Weather derivatives, detrending, global warming
JEL Classification: G12, G13
Suggested Citation: Suggested Citation