A fair pricing approach to weather derivatives

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dc.contributor.author Platen, E
dc.contributor.author West, J
dc.date.accessioned 2009-12-21T02:37:29Z
dc.date.issued 2005-01
dc.identifier.citation Asia-Pacific Financial Markets, 2005, 11 (1), pp. 23 - 53
dc.identifier.issn 1387-2834
dc.identifier.other C1 en_US
dc.identifier.uri http://hdl.handle.net/10453/5261
dc.description.abstract This paper proposes a consistent approach to the pricing of weather derivatives. Since weather derivatives are traded in an incomplete market setting, standard hedging based pricing methods cannot be applied. The growth optimal portfolio, which is interpreted as a world stock index, is used as a benchmark or numeraire such that all benchmarked derivative price processes are martingales. No measure transformation is needed for the proposed fair pricing. For weather derivative payoffs that are independent of the value of the growth optimal portfolio, it is shown that the classical actuarial pricing methodology is a particular case of the fair pricing concept. A discrete time model is constructed to approximate historical weather characteristics. The fair prices of some particular weather derivatives are derived using historical and Gaussian residuals. The question of weather risk as diversifiable risk is also discussed. © Springer 2005.
dc.language eng
dc.relation.hasversion Accepted manuscript version
dc.relation.isbasedon 10.1007/s10690-005-4252-9
dc.title A fair pricing approach to weather derivatives
dc.type Journal Article
dc.parent Asia-Pacific Financial Markets
dc.journal.volume 1
dc.journal.volume 11
dc.journal.number 1 en_US
dc.publocation New York, USA en_US
dc.identifier.startpage 23 en_US
dc.identifier.endpage 53 en_US
dc.cauo.name BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 150201 Finance
dc.personcode 970685
dc.percentage 100 en_US
dc.classification.name Finance en_US
dc.classification.type FOR-08 en_US
dc.description.keywords Actuarial pricing
dc.description.keywords Benchmark approach
dc.description.keywords Fair pricing
dc.description.keywords Growth optimal portfolio
dc.description.keywords Weather derivatives
pubs.embargo.period Not known
pubs.organisational-group /University of Technology Sydney
pubs.organisational-group /University of Technology Sydney/Faculty of Science
pubs.organisational-group /University of Technology Sydney/Strength - Quantitative Finance
utslib.copyright.status Closed Access
utslib.copyright.date 2015-04-15 12:23:47.074767+10
pubs.consider-herdc true
utslib.collection.history School of Mathematical Sciences (ID: 340)
utslib.collection.history General (ID: 2)


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