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As a result of the affect of normal variations and extreme or
catastrophic events of weather and climate, a growing number of
businesses and government entities are seeking out methods to
manage their exposure to weather risk, which include the use of
derivatives, insurance products and changes in their operations.
This course provides a comprehensive and technical treatment of
the valuation and risk management of weather derivatives.
COURSE OUTLINE
Day 1, AM: Introduction and Data Analysis
- Fundamentals of weather derivatives
- Weather related risks
- Recent market developments
- Weather versus financial derivatives
- Where to find information
- Heating degree days and cooling degree days
- Temperature, precipitation, wind analysis
Computer Workshop: Analysing Weather Data
Day 1, PM: Weather Derivative Structures
- Using derivatives for weather risk management
- Weather hedging strategies
- Exchange traded weather derivatives – payoffs and analysis
- Over-the-counter weather derivatives – Degree day options,
calls, puts, and collars
- Temperature, precipitation and wind speed contracts
- Hedging volumetric risk
Computer Workshop: Analysis of payoffs for a range of weather
derivatives using data from various regions
Day 2, AM: Basics of Modelling Weather for Pricing
Derivatives
- Summary of weather derivative pricing approaches
- Will Black-Scholes do?
- Historical simulation (Burn Analysis)
- Introduction to Monte Carlo simulation for weather derivative
pricing
- Pricing weather derivatives
Computer Workshop: Using Burn Analysis and Monte Carlo simulation
for pricing a range of weather derivatives.
Day 2, PM: Advanced Models for Weather Derivative
Pricing
- Introducing more advanced techniques – mean reversion,
jumps, time varying patterns for seasonality, joint modelling
of regions
- Value-at-risk for weather derivatives – Correlations
and extreme events
Computer Workshop: Using advanced models for pricing a range
of weather derivatives
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Overview
