Pricing weather derivatives by marginal value
AbstractWeather derivatives are a classic incomplete market. This paper gives a preliminary exploration of weather derivative pricing using the 'marginal substitution value' or 'shadow price' approach of mathematical economics. Accumulated heating degree days (HDD) and commodity prices are modelled as geometric Brownian motion, leading to explicit expressions for swap rates and option values.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Quantitative Finance.
Volume (Year): 1 (2001)
Issue (Month): 3 ()
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