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Pricing temperature-based weather contracts: an application to China

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  • Ahmet Goncu

Abstract

This article is the first study to price temperature-based weather derivatives based on the daily average temperatures of Chinese cities, namely Beijing, Shanghai and Shenzhen. A dynamic model with a piecewise constant volatility function, proposed by Alaton et al. (2002), is used for pricing Heating Degree Days (HDD) and Cooling Degree Days (CDD) options. Price estimates for these options are obtained using Monte Carlo simulation and analytical approximation methods.

Suggested Citation

  • Ahmet Goncu, 2011. "Pricing temperature-based weather contracts: an application to China," Applied Economics Letters, Taylor & Francis Journals, vol. 18(14), pages 1349-1354.
    • Handle: RePEc:taf:apeclt:v:18:y:2011:i:14:p:1349-1354
    DOI: 10.1080/13504851.2010.537619
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    Cited by:

    1. Baojing Sun & G. Cornelis van Kooten, 2014. "Financial Weather Options for Crop Production," Working Papers 2014-03, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    2. Sun, Baojing, 2017. "Financial Weather Derivatives for Corn Production in Northeastern China: Modelling the Underlying Weather Index," Working Papers 257083, University of Victoria, Resource Economics and Policy.
    3. Sun, Baojing, 2017. "Financial Weather Derivatives for Corn Production in Northeastern China: Modelling the underlying Weather Index," Working Papers 263197, University of Victoria, Resource Economics and Policy.
    4. Baojing Sun, 2017. "Financial Weather Derivatives for Corn Production in Northeastern China: Modelling the underlying Weather Index," Working Papers 2017-05, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    5. Sun, Baojing & van Kooten, G. Cornelis, 2015. "Financial weather derivatives for corn production in Northern China: A comparison of pricing methods," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 201-209.

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