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Determining the Fair Price of Weather hedging

Author

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  • Miroslava Mahlebashieva

Abstract

The present article brings to the fore the issue of the fair pricing of hedging against climatic risks in Bulgaria by applying an actuarial approach for determining the price of a climatic put option. On the basis of data on the daily maximum and minimum temperatures in the town of Varna for the period from 2007 to 2010 there has been developed and evaluated a model of average daily temperatures, which summarizes the main characteristics of the process of air temperatures: long-term trend, seasonal cycle, autocorrelation and heteroscedasticity.

Suggested Citation

  • Miroslava Mahlebashieva, 2013. "Determining the Fair Price of Weather hedging," Business & Management Compass, University of Economics Varna, issue 3, pages 93-105.
    • Handle: RePEc:vrn:journl:y:2013:i:3:p:93-105
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    More about this item

    Keywords

    climatic options; pricing; actuarial methods; modelling of temperatures; simulation;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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