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Pricing summer day options by good-deal bounds

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  • Kanamura, Takashi
  • Ohashi, Kazuhiko

Abstract

Despite the worldwide popularity of CDD- and HDD-type weather derivatives based on temperature, a different class of weather derivatives, so-called summer day options, is more popular in Japan; the payoffs are determined by the number of summer days (i.e., the days whose average temperature is above 25 °C) during the contract period. In this paper, we price such summer day options by the good-deal bounds of Cochrane and Saa-Requejo [Cochrane, J.H., and J. Saa-Requejo, 2000, Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets, Journal of Political Economy 108, 79-119.], using temperature data for Tokyo.

Suggested Citation

  • Kanamura, Takashi & Ohashi, Kazuhiko, 2009. "Pricing summer day options by good-deal bounds," Energy Economics, Elsevier, vol. 31(2), pages 289-297, March.
    • Handle: RePEc:eee:eneeco:v:31:y:2009:i:2:p:289-297
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    References listed on IDEAS

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    1. John H. Cochrane & Jesus Saa-Requejo, 2000. "Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 79-119, February.
    2. M. Davis, 2001. "Pricing weather derivatives by marginal value," Quantitative Finance, Taylor & Francis Journals, vol. 1(3), pages 305-308, March.
    3. Hansen, Lars Peter & Jagannathan, Ravi, 1991. "Implications of Security Market Data for Models of Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 225-262, April.
    4. Lettau, Martin & Uhlig, Harald, 2002. "The Sharpe Ratio And Preferences: A Parametric Approach," Macroeconomic Dynamics, Cambridge University Press, vol. 6(2), pages 242-265, April.
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    Cited by:

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    3. Kanamura, Takashi & Homann, Lasse & Prokopczuk, Marcel, 2021. "Pricing analysis of wind power derivatives for renewable energy risk management," Applied Energy, Elsevier, vol. 304(C).
    4. Hernández Arango, José Miguel & Carvajal-Serna, Luis Fernando, 2017. "Cobertura al riesgo ante la variabilidad hidrológica en una central hidráulica a filo de agua usando derivados climáticos," Revista Lecturas de Economía, Universidad de Antioquia, CIE, issue 87, pages 191-222, March.
    5. Takuji Matsumoto & Yuji Yamada, 2021. "Customized yet Standardized Temperature Derivatives: A Non-Parametric Approach with Suitable Basis Selection for Ensuring Robustness," Energies, MDPI, vol. 14(11), pages 1-24, June.
    6. Yuji Yamada & Takuji Matsumoto, 2021. "Going for Derivatives or Forwards? Minimizing Cashflow Fluctuations of Electricity Transactions on Power Markets," Energies, MDPI, vol. 14(21), pages 1-28, November.
    7. Kanamura, Takashi, 2019. "Volumetric Risk Hedging Strategies and Basis Risk Premium for Solar Power," MPRA Paper 92009, University Library of Munich, Germany.
    8. Shinji Kuno & Kenji Tanaka & Yuji Yamada, 2022. "Effectiveness and Feasibility of Market Makers for P2P Electricity Trading," Energies, MDPI, vol. 15(12), pages 1-24, June.

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