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Estimation Risk and the Pricing of Weather Derivatives

Abstract : Temperature modelling is a major issue for valuation of weather derivatives. Goodness of fit is usually assessed from historical data. However, estimation errors can result in large price uncertainty that may be problematic for practical applications. In this paper, we consider a temperature ARMA model and quantify the price uncertainties for weather Futures and options. In addition we look for sources of uncertainty, and point out the major defects of the model.
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Submitted on : Wednesday, October 24, 2012 - 3:09:47 PM
Last modification on : Wednesday, June 24, 2020 - 4:18:20 PM


  • HAL Id : emse-00745082, version 1


Olivier Roustant, Jean-Paul Laurent, Xavier Bay, Laurent Carraro. Estimation Risk and the Pricing of Weather Derivatives. AFFI rencontre chercheurs / industrie financière, Dec 2001, Paris, France. ⟨emse-00745082⟩



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