Hedging of Spatial Temperature Risk with Market-Traded Futures
AbstractThe main objective of this work is to construct optimal temperature futures from available market-traded contracts to hedge spatial risk. Temperature dynamics are modelled by a stochastic differential equation with spatial dependence. Optimal positions in market-traded futures minimizing the variance are calculated. Examples with numerical simulations based on a fast algorithm for the generation of random fields are presented.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.
Volume (Year): 18 (2011)
Issue (Month): 2 ()
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Web page: http://www.tandfonline.com/RAMF20
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