Modeling Temperature and Pricing Weather Derivatives Based on Temperature

Tastan, Birhan
Hayfavi, Azize
This study first proposes a temperature model to calculate the temperature indices upon which temperature-based derivatives are written. The model is designed as a mean-reverting process driven by a Levy process to represent jumps and other features of temperature. Temperature indices are mainly measured as deviations from a base temperature, and, hence, the proposed model includes jumps because they may constitute an important part of this deviation for some locations. The estimated value of a temperature index and its distribution in this model apply an inversion formula to the temperature model. Second, this study develops a pricing process over calculated index values, which returns a customized price for temperature-based derivatives considering that temperature has unique effects on every economic entity. This personalized price is also used to reveal the trading behavior of a hypothesized entity in a temperature-based derivative trade with profit maximization as the objective. Thus, this study presents a new method that does not need to evaluate the risk-aversion behavior of any economic entity.


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Tuncel, Süleyman Gürdal; ZOLLER, WH (American Geophysical Union (AGU), 1989-09-20)
Abstract High‐volume particle samples were collected from 1979 to 1983 from the south pole atmosphere and analyzed by nuclear methods. The new results are combined with similar studies at the south pole. There is no trend of concentrations during 12 years of sampling, but concentrations of elements fluctuate through seasonal cycles. Concentrations of elements associated with crustal dust and sea salt showed opposite seasonal variations. Concentrations of most crustal elements are low during winters, but dou...
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Time series and spectral analyses are applied to meteorological data (wind velocity, air temperature, barometric pressure) and sea level measurements from a total of 13 monitoring stations along the Turkish Coast. Analyses of four-year time series identify main time scales of transport and motion while establishing seasonal characteristics, i.e. distinguishing, for instance, between winter storms and summer sea-breeze system. Marine flow data acquired by acoustic doppler current pro filers (ADCP) is also a...
Orbey, H.; Orbey, N. (Informa UK Limited, 1989-3)
A data reduction technique is introduced for the evaluation of second virial coefficients of gases at subcritical temperatures. The method makes use of the vapor-liquid equilibrium data, i.e., temperature, saturation pressure, liquid and vapor molar volumes and can be used to obtain second virial coefficients of a wide variety of fluids including polar, associating and quantum gases. The calculated second virial coefficients are in good agreement with their counterparts from literature, which are obtained f...
Predictability of Seasonal Precipitation Using Joint Probabilities
Yılmaz, Mustafa Tuğrul (2010-01-17)
This paper tests whether seasonal mean precipitation is predictable using a new method that estimates and analyzes joint probabilities. The new estimation method is to partition the globe into boxes, pool all data within the box to estimate a single joint probability of precipitation for two consecutive seasons, and then apply the resulting joint probability to individual pixels in the box. Pooling data in this way allows joint probabilities to be estimated in relatively small sample sizes, but assumes that...
Selçuk, Nevin (1988-07-01)
Three flux-type models for three-dimensional radiative heat transfer were applied to the prediction of the radiative flux density and the source term of a box-shaped enclosure problem based on data reported previously on a large-scale experimental furnace with steep temperature gradients. The models, which are a six-term discrete ordinate model and two Schuster-Schwarzschild type six-flux models, were evaluated from the viewpoints of both predictive accuracy and computational economy by comparing their pred...
Citation Formats
B. Tastan and A. Hayfavi, “Modeling Temperature and Pricing Weather Derivatives Based on Temperature,” ADVANCES IN METEOROLOGY, pp. 0–0, 2017, Accessed: 00, 2020. [Online]. Available: