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- Publisher
- IOS Press
- Copyright
- Copyright © 2014 by IOS Press, Inc
- ISSN
- 1569-7371
- eISSN
- 1875-9173
- DOI
- 10.3233/RDA-140102
- Publisher site
- See Article on Publisher Site
Abstract
Pricing formulas for components of a portfolio of temperature-based weather derivatives, as well as the corresponding hedging formula, are derived using the recent general theory of neutral and indifference pricing and hedging in incomplete markets. The derived pricing formulas have the flexibility to account for the total exposure, i.e., for the number of weather derivatives contracts held. In particular, we obtain a structural form for the market price of risk (the risk premium).
Journal
Risk and Decision Analysis – IOS Press
Published: Jan 1, 2014