Pricing Weather Derivatives

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dc.creatorRichards, Timothy J.
dc.creatorManfredo, Mark R.
dc.creatorSanders, Dwight R.
dc.date2017-04-01T13:44:27Z
dc.date.accessioned2026-07-09T04:01:44Z
dc.descriptionThis 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. Comparing option prices estimated with three methods: a traditional burn-rate approach, a Black-Scholes-Merton approximation, and an equilibrium Monte Carlo simulation reveals significant differences. Equilibrium prices are preferred on theoretical grounds, so are used to demonstrate the usefulness of weather derivatives as risk management tools for California specialty crop growers.
dc.identifierdoi:10.22004/ag.econ.28536
dc.identifierhttps://ageconsearch.umn.edu/record/28536/files/wp040002.pdf
dc.identifierhttp://ageconsearch.umn.edu/record/28536
dc.identifier.urihttp://hdl.handle.net/123456789/543710
dc.languageeng
dc.publisher
dc.sourcehttp://ageconsearch.umn.edu/record/28536
dc.titlePricing Weather Derivatives
dc.typeText

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