Introduction to weather derivatives

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F68407700%3A21230%2F22%3A00352801" target="_blank" >RIV/68407700:21230/22:00352801 - isvavai.cz</a>

Result on the web

<a href="https://doi.org/10.1002/wene.426" target="_blank" >https://doi.org/10.1002/wene.426</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1002/wene.426" target="_blank" >10.1002/wene.426</a>

Result language

angličtina

Original language name

Introduction to weather derivatives

Original language description

The weather is one of the factors that may have an impact on the countries' economies. There are two main hedging ways against unexpected weather conditions: weather derivatives and weather insurances. During the last two decades, companies started to use weather derivatives against weather issues, especially in the energy and agriculture sectors. Starting from weather derivatives' first launch, their transaction volumes at the exchange and over-the-counter markets have increased. In addition to the increasing dependency of the economies on the weather, providing the weather derivative contracts with a reasonable premium amount is another reason which helps to have this positive trend. Since weather derivatives have similar parameters and rules with classical financial derivatives, it is possible to use the same pricing approaches for financial and weather derivatives. Monte–Carlo simulation, based on random number generation, is one of the existing methods of pricing derivative contracts. A difference between simulated values and really occurred data is the base point of the expected payoff or price of the contract. The current article introduces weather derivatives and shows two different approaches to their pricing, where one of them requires deeper statistical analysis. Adding the statistical analysis into the consideration, defining the relation between each data value, helps to provide better estimation and less volatility. Having less volatility can provide more accurate estimations and reasonable prices that are affordable and desired by the companies.

Czech name

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Czech description

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Type

J_imp - Article in a specialist periodical, which is included in the Web of Science database

CEP classification

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OECD FORD branch

20704 - Energy and fuels

Project

—

Continuities

I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace

Publication year

2022

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Name of the periodical

WIREs Energy and Environment

ISSN

2041-8396

e-ISSN

2041-840X

Volume of the periodical

11

Issue of the periodical within the volume

3

Country of publishing house

US - UNITED STATES

Number of pages

15

Pages from-to

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UT code for WoS article

000720262000001

EID of the result in the Scopus database

2-s2.0-85119426650