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Density Forecasting for Weather Derivative Pricing

Abstract:

Weather derivatives enable energy companies to protect themselves against weather risk. Weather ensemble predictions are generated from atmospheric models and consist of multiple future scenarios for a weather variable. They can be used to forecast the density of the payoff from a weather derivative. The mean of the density is the fair price of the derivative, and the distribution about the mean is important for risk management tools, such as value-at-risk models. In this empirical paper, we ...

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Publication date:
2006-01-05
URN:
uuid:9d804d0e-8459-478c-b6d7-ca327806baed
Local pid:
oai:eureka.sbs.ox.ac.uk:1718

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