A critical view on temperature modelling for application in weather derivatives markets
AbstractIn this paper we present a stochastic model for daily average temperature. The model contains seasonality, a low-order autoregressive component and a variance describing the heteroskedastic residuals. The model is estimated on daily average temperature records from Stockholm (Sweden). By comparing the proposed model with the popular model of Campbell and Diebold (2005), we point out some important issues to be addressed when modelling the temperature for application in weather derivatives market.
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Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 34 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/eneco
Temperature; Time series model; Weather derivatives; Seasonality; GARCH;
Find related papers by JEL classification:
- C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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Center for Financial Institutions Working Papers
02-42, Wharton School Center for Financial Institutions, University of Pennsylvania.
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