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Pricing Weather Derivatives [PDF]
American Journal of Agricultural Economics, 2004 This paper presents a general method for pricing weather derivatives. Specification tests find that a temperature series for Fresno, California follows a mean-reverting Brownian motion process with discrete jumps and ARCH errors. Based on this process, we define an equilibrium pricing model for cooling degree day weather options.
Richards, Timothy J. +5 more
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PRICING PRECIPITATION BASED DERIVATIVES [PDF]
International Journal of Theoretical and Applied Finance, 2005 We consider the problem of pricing a derivative contract written on precipitation at a specific location during a given period of time. We propose a jump Markov process model for the stochastic dynamics of the underlying precipitation. Our model is based on pulse Poisson process models widely used in hydrology.
RENÉ CARMONA, PAVEL DIKO
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Model-independent pricing with insider information: a Skorokhod embedding approach [PDF]
, 2020 In this paper, we consider the pricing and hedging of a financial derivative for an insider trader, in a model-independent setting. In particular, we suppose that the insider wants to act in a way which is independent of any modelling assumptions, but ...
Acciaio, Beatrice +2 more
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Option pricing with non-Gaussian scaling and infinite-state switching volatility [PDF]
, 2014 Volatility clustering, long-range dependence, and non-Gaussian scaling are stylized facts of financial assets dynamics. They are ignored in the Black & Scholes framework, but have a relevant impact on the pricing of options written on financial assets ...
Baldovin, Fulvio +4 more
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Pricing Catastrophe Insurance Derivatives [PDF]
SSRN Electronic Journal, 2002 We investigate the valuation of catastrophe insurance derivatives that are traded at the Chicago Board of Trade. By modeling the underlying index as a compound Poisson process we give a representation of no-arbitrage price processes using Fourier analysis. This characterization enables us to derive the inverse Fourier transform of prices in closed form
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Closed form asymptotics for local volatility models [PDF]
, 2009 We obtain new closed-form pricing formulas for contingent claims when the asset follows a Dupire-type local volatility model. To obtain the formulas we use the Dyson-Taylor commutator method that we have recently developed in [5, 6, 8] for short-time ...
Cheng, Wen +4 more
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Credit derivatives and loan pricing [PDF]
Journal of Banking & Finance, 2007 This paper examines the relationship between the new markets for credit default swaps (CDS) and the pricing of syndicated loans to U.S. corporates. We find that changes in CDS spreads have a significantly positive coefficient and explain about 25% of subsequent monthly changes in aggregate loan spreads during 2000-2005.
Norden, Lars, Weber, Martin
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Pricing Weather Derivatives [PDF]
The Journal of Risk Finance, 2000 This article briefly reviews the background of weather derivatives. The primary goal is to develop a pricing scheme that accommodates and reflects their unique characteristics. Because the underlying indexes of weather derivatives are not traded, a no‐arbitrage model cannot be directly applied for the purpose of pricing.
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Optimal hedging of Derivatives with transaction costs
, 2005 We investigate the optimal strategy over a finite time horizon for a portfolio of stock and bond and a derivative in an multiplicative Markovian market model with transaction costs (friction).
Avellaneda M. +4 more
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Density forecasting for weather derivative pricing [PDF]
International Journal of Forecasting, 2006 Weather derivatives enable energy companies to protect themselves against weather risk. Weather ensemble predictions are generated from atmospheric models and consist of multiple future scenarios for a weather variable. They can be used to forecast the density of the payoff from a weather derivative.
Taylor J, Buizza R
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