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Extensions of temperature and wind speed models

In: Modeling and Pricing in Financial Markets for Weather Derivatives

Author

Listed:
  • Fred Espen Benth

    (University of Oslo, Norway)

  • Jūratė Šaltytė Benth

    (University of Oslo, Norway)

Abstract

In the previous two Chapters we analyzed stochastic models for the temperature and wind speed dynamics based on CARMA processes. The purpose of this Chapter is to extend these models in various directions, to allow for even more sophisticated dynamics for these weather factors. In particular, we introduce stochastic volatility in weather modelling, and generalize the CARMA dynamics to so-called Lévy semistationary processes. The popular class of fractional Brownian motion based models is discussed. For all the models we look at the pricing of weather derivatives as an application.In the analyses of this Chapter we make use of Lévy processes. The reader not familiar with this class of stochastic processes, can find a basic, yet thorough introduction in [Cont and Tankov (2004)].

Suggested Citation

  • Fred Espen Benth & Jūratė Šaltytė Benth, 2012. "Extensions of temperature and wind speed models," World Scientific Book Chapters, in: Modeling and Pricing in Financial Markets for Weather Derivatives, chapter 6, pages 139-155, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814401852_0006
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    Cited by:

    1. Kononovicius, Aleksejus & Kazakevičius, Rytis & Kaulakys, Bronislovas, 2022. "Resemblance of the power-law scaling behavior of a non-Markovian and nonlinear point processes," Chaos, Solitons & Fractals, Elsevier, vol. 162(C).
    2. Aleksejus Kononovicius & Rytis Kazakeviv{c}ius & Bronislovas Kaulakys, 2022. "Resemblance of the power-law scaling behavior of a non-Markovian and nonlinear point processes," Papers 2205.07563, arXiv.org, revised Jul 2022.

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