Advanced Search
MyIDEAS: Login to save this paper or follow this series

Single Factor Stochastic Models With Seasonality Applied To Underlying Weather Derivatives Variables

Contents:

Author Info

  • Enric Valor

    (Universitat de València)

  • Hipòlit Torró

    (Universitat de València)

  • Vicente Meneu

    (Universitat de València)

Abstract

This paper estimates single factor stochastic models describing daily air temperature behaviour. We modify classical financial models to reflect temperature seasonality and fit them to a time series representing temperatures in Spain. The estimated models are used in Montecarlo simulations to obtain heating and cooling degree-days, which are used as an underlying reference in weather derivatives. The final goal of this work is to obtain an insight into weather derivative valuation, and so making it easier to manage economic activity risks closely related to temperature (i.e. oil, gas and electricity prices and volumes). En este trabajo se estiman modelos estocásticos unifactoriales que describen elcomportamiento de la temperatura del aire de un índice representativo de la Españapeninsular. Los modelos más utilizados en finanzas se adaptan para incorporar elcomportamiento estacional de la variable temperatura. El objetivo de este trabajo es obtenerresultados que permitan avanzar en la valoración de activos derivados sobre climatología.Este tipo de derivados permiten gestionar riesgos de la actividad económica estrechamenterelacionados con la temperatura (por ejemplo, los riesgos de precio y volumen del gas y laelectricidad). Con los modelos estimados se realiza un ejercicio de simulación de Montecarlopara obtener los grados día frío y los grados día calor que son las referencias subyacentes enlos contratos de meteorología.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ivie.es/downloads/docs/wpasec/wpasec-2001-22.pdf
File Function: Fisrt version / Primera version, 2001
Download Restriction: no

Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie EC with number 2001-22.

as in new window
Length: 23 pages
Date of creation: Nov 2001
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasec:2001-22

Contact details of provider:
Postal: C/ Guardia Civil, 22, Esc 2a, 1o, E-46020 VALENCIA
Phone: +34 96 319 00 50
Fax: +34 96 319 00 55
Email:
Web page: http://www.ivie.es/
More information through EDIRC

Related research

Keywords: Grados Día Frío; Energía; Grados Día Calor; Estacionalidad; Modelos estocásticos y Derivados de la meteorología. Cooling Degree-days; Energy; Heating Degree-days; Seasonality; Stochastic Models; Weather Derivatives.;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
  2. Henley, Andrew & Peirson, John, 1998. "Residential energy demand and the interaction of price and temperature: British experimental evidence," Energy Economics, Elsevier, vol. 20(2), pages 157-171, April.
  3. Pardo, Angel & Meneu, Vicente & Valor, Enric, 2002. "Temperature and seasonality influences on Spanish electricity load," Energy Economics, Elsevier, vol. 24(1), pages 55-70, January.
  4. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  5. Peirson, John & Henley, Andrew, 1994. "Electricity load and temperature : Issues in dynamic specification," Energy Economics, Elsevier, vol. 16(4), pages 235-243, October.
  6. Manuel Moreno & Juan I. Peña, 1996. "On the term structure of Interbank interest rates: Jump-diffusion processes and option pricing," Economics Working Papers 191, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Brennan, Michael J. & Schwartz, Eduardo S., 1982. "An Equilibrium Model of Bond Pricing and a Test of Market Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(03), pages 301-329, September.
  8. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Campbell, Sean D. & Diebold, Francis X., 2004. "Weather forecasting for weather derivatives," CFS Working Paper Series 2004/10, Center for Financial Studies (CFS).
  2. Kosater, Peter, 2006. "Cross-city hedging with weather derivatives using bivariate DCC GARCH models," Discussion Papers in Statistics and Econometrics 2/06, University of Cologne, Department for Economic and Social Statistics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ivi:wpasec:2001-22. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Departamento de Edición).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.