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2014-01-13Buch DOI: 10.18452/4493
A consistent two-factor model for pricing temperature derivatives
dc.contributor.authorGroll, Andreas
dc.contributor.authorLópez-Cabrera, Brenda
dc.contributor.authorMeyer-Brandis, Thilo
dc.date.accessioned2017-06-16T00:56:58Z
dc.date.available2017-06-16T00:56:58Z
dc.date.created2014-06-19
dc.date.issued2014-01-13
dc.date.submitted2014-01-13
dc.identifier.issn1860-5664
dc.identifier.urihttp://edoc.hu-berlin.de/18452/5145
dc.description.abstractWe analyze a consistent two-factor model for pricing temperature derivatives that incorporates the forward looking information available in the market by specifying a model for the dynamics of the complete meteorological forecast curve. The two-factor model is a generalization of the Nelson-Siegel curve model by allowing factors with mean-reversion to a stochastic mean for structural changes and seasonality for periodic patterns. Based on the outcomes of a statistical analysis of forecast data we conclude that the two-factor model captures well the stylized features of temperature forecast curves. In particular, a functional principal component analysis reveals that the model re ects reasonably well the dynamical structure of forecast curves by decomposing their shapes into a tilting and a bending factor. We continue by developing an estimation procedure for the model, before we derive explicit prices for temperature derivatives and calibrate the market price of risk (MPR) from temperature futures derivatives (CAT, HDD, CDD) traded at the Chicago Mercantile Exchange (CME). The factor model shows that the behavior of the implied MPR for futures traded in and out of the measurement period is more stable than other estimates obtained in the literature. This confirms that at least parts of the irregularity of the MPR is not due to irregular risk perception but rather due to information misspecification. Similar to temperature derivatives, this approach can be used for pricing other non-tradable assets.eng
dc.language.isoeng
dc.publisherHumboldt-Universität zu Berlin, Wirtschaftswissenschaftliche Fakultät
dc.rights.urihttp://rightsstatements.org/vocab/InC/1.0/
dc.subjectconsistencyeng
dc.subjectmarket price of riskeng
dc.subjectweather derivativeseng
dc.subjectfactor modelseng
dc.subjectpricing and hedgingeng
dc.subject.ddc310 Sammlungen allgemeiner Statistiken
dc.subject.ddc330 Wirtschaft
dc.titleA consistent two-factor model for pricing temperature derivatives
dc.typebook
dc.identifier.urnurn:nbn:de:kobv:11-100218056
dc.identifier.doihttp://dx.doi.org/10.18452/4493
local.edoc.container-titleSonderforschungsbereich 649: Ökonomisches Risiko
local.edoc.pages42
local.edoc.type-nameBuch
local.edoc.container-typeseries
local.edoc.container-type-nameSchriftenreihe
local.edoc.container-volume2014
local.edoc.container-issue6
local.edoc.container-year2014
local.edoc.container-erstkatid2195055-6

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