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Pricing of forward contracts on temperature and wind speed

In: Modeling and Pricing in Financial Markets for Weather Derivatives

Author

Listed:
  • Fred Espen Benth

    (University of Oslo, Norway)

  • Jūratė Šaltytė Benth

    (University of Oslo, Norway)

Abstract

This chapter discusses various “classical” approaches to pricing weather contracts written on temperature and wind speed. The approaches include the rational expectation hypothesis and the burn analysis. The latter does not provide a dynamical price, but can only give one constant price. We focus on the risk-neutral pricing approach including the rational expectation hypothesis as a special case, and price various contracts traded in the weather markets for temperature and wind speed.

Suggested Citation

  • Fred Espen Benth & Jūratė Šaltytė Benth, 2012. "Pricing of forward contracts on temperature and wind speed," World Scientific Book Chapters, in: Modeling and Pricing in Financial Markets for Weather Derivatives, chapter 5, pages 107-137, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814401852_0005
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