Modeling temperature and pricing weather derivatives based on temperature

Download

index.pdf

Date

2016

Author

Taştan, Birhan

Metadata

Show full item record

Item Usage Stats

241
views

123
downloads

Weather Derivatives are financial contracts prepared to reduce weather risks faced by economic actors to regulate cash flows and protect earnings. The weather derivatives may be in the forms of options, futures, swaps, and bonds whose payout are dependent on some weather indices. The firms in the sectors like energy, insurance, agriculture, construction use weather derivatives mostly. Weather derivatives are different than the traditional financial derivatives on several occasions. Traditional financial derivatives are based on some assets like stocks, bonds, foreign exchange, interest rate etc. that are traded on the market. Besides, weather derivatives are based on a weather index, which is not traded. Also financial derivatives are generally used to hedge price risk, while weather derivatives are used to hedge volume risk. Because of different nature of the weather derivatives its pricing is different than the pricing of other financial derivatives. In addition, although it is possible to write a derivative that uses any weather index like temperature, humidity, and wind speed etc. most of the weather derivatives that are traded on market are based on temperature. Within this context, in this thesis, models for temperature and pricing issues of the weather derivatives based on temperature will be evaluated. Moreover, the applicability of the weather derivatives to Turkey will be investigated.

Subject Keywords

Weather derivatives., Derivative securities., Weather forecasting., Risk management.

URI

http://etd.lib.metu.edu.tr/upload/12619906/index.pdf
https://hdl.handle.net/11511/25585

Collections

Graduate School of Applied Mathematics, Thesis

Suggestions

OpenMETU
Core

Forecasting the Hydro Inflow and Optimization of Virtual Power Plant Pricing Çabuk, Sezer; Mert, Özenç Murat; Kestel, Sevtap Ayşe; Kalaycı, Erkan (Springer, 2021-01-01) Hydro inflow forecasting is crucial for effective hydro optimization, virtual power plant pricing, volume risk management, and weather derivatives pricing in the electricity markets. Predicting hydro inflow allows the decision-makers to economically use water for optimal periods, quantify volume risk and determine effective portfolio management strategies. This study aims pricing a hydroelectricity power plant as a Virtual Power Plant based on Turkish energy markets. For pricing of such a non-standard optio...
Computation of Hedging Coefficients for Mortgage Default and Prepayment Options: Malliavin Calculus Approach YILMAZ, BİLGİ; Kestel, Sevtap Ayşe (2019-11-01) This study explores the hedging coefficients of the financial options to default and to prepay embedded into mortgage contracts based on the change in spot rate, underlying house price and its volatility. In the computations, the finite-dimensional Malliavin calculus is applied since the distribution of both options is unknown and their payoffs are non-differentiable. Naturally, the hedging coefficients are obtained as a product of option's payoff and an independent weight, which permits the user to derive ...
Analyzing Housing Market Dynamics using Linear and non-Parametric Models Yılmaz, Bilgi; Yerlikaya Özkurt, Fatma; Kestel, Sevtap Ayşe (2018-10-07) This paper analyzes the dynamic effect of macroeconomic indicators, such as financial and commodity market indicators on national housing markets. Furthermore, it does not only focus on the impact of the variables but also introduces a variety of models that based on the generalized linear models and multivariate adaptive regression splines. The models help us to identify the macroeconomic drivers of housing markets. Since the US has an adequate housing market data, the empirical analysis within the paper f...
Quantiative Methodology for Determination of Cost Contingency in International Projects Sönmez, Rifat; Birgönül, Mustafa Talat (American Society of Civil Engineers (ASCE), 2007-01-01) This paper presents a quantitative methodology to determine financial impacts of the risk factors during the bidding stages of international construction projects. Project and country data of 26 construction projects from 21 countries were collected for evaluation of the international risk factors. The factors impacting cost contingency were identified using correlation and regression analysis techniques. The results indicated that four factors had major contributions for explaining the variations in the co...
Modeling illiquidity premium and bid-ask prices of the financial securities Karimov, Azar; Weber, Gerhard Wilhelm; Teker, Suat; Department of Financial Mathematics (2016) When a financial bubble bursts, this affects the entire economy. Therefore, it is important to recognize bubbles as early as possible. In this thesis, we introduce a new approach to identify stock market bubbles by using illiquidity premium derived by employing Conic Finance theory. This theory is connected with liquidity effects and risk behavior of money markets. In financial markets, liquidity is an important quantity since it mirrors the asset's capability to be bought or sold without a significant chan...

Citation Formats

B. Taştan, “Modeling temperature and pricing weather derivatives based on temperature,” Ph.D. - Doctoral Program, Middle East Technical University, 2016.