A fair pricing approach to weather derivatives

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dc.contributor.author Platen, Eckhard en_US
dc.contributor.author West, Jason en_US
dc.date.accessioned 2009-12-21T02:37:29Z
dc.date.available 2009-12-21T02:37:29Z
dc.date.issued 2005 en_US
dc.identifier 2005001976 en_US
dc.identifier.citation Platen Eckhard and West Jason 2005, 'A fair pricing approach to weather derivatives', Springer, vol. 11, no. 1, pp. 23-53. en_US
dc.identifier.issn 1387-2834 en_US
dc.identifier.other C1 en_US
dc.identifier.uri http://hdl.handle.net/10453/5261
dc.description.abstract This paper proposes a consistent approach to the pricing of weather derivatives. Since weather derivatives are traded in an incomplete market setting, standard hedging based pricing methods cannot be applied. The growth optimal portfolio, which is interpreted as a world stock index,is used as a benchmark or numeraire such that all benchmarked derivative price processes are martingales. No measure transformation is needed for the proposed fair paricing. For weather derivative payoffs that are independent of the value of the growth optimal portfolio, it is shown that the classical actuarial pricing methodology is a particular case of the fair pricing concepts. A discrete time model is constructed to approximate historical weather characteristics. The fair prices of some partuclar weather derivatives are derived using historical and Gaussian residuals. The question of weather risk as diversifiable risk is also discussed. en_US
dc.publisher Springer en_US
dc.relation.hasversion Accepted manuscript version
dc.rights The original publication is available at www.springerlink.com
dc.title A fair pricing approach to weather derivatives en_US
dc.parent Asia-Pacific Financial Markets en_US
dc.journal.volume 11 en_US
dc.journal.number 1 en_US
dc.publocation New York, USA en_US
dc.identifier.startpage 23 en_US
dc.identifier.endpage 53 en_US
dc.cauo.name BUS.School of Finance and Economics en_US
dc.conference Verified OK en_US
dc.for 150201 en_US
dc.personcode 970685 en_US
dc.personcode 01004136 en_US
dc.percentage 100 en_US
dc.classification.name Finance en_US
dc.classification.type FOR-08 en_US
dc.description.keywords actuarial pricing, benchmark approach, fair pricing, growth optimal portfolio, weather derivative en_US

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