Peer group analysis for introducing weather derivatives for a city

Hong, Seok Jae; Sohn, So Young

doi:10.1016/j.eswa.2013.04.033

Cited by 5 publications

(3 citation statements)

References 24 publications

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“…Due to ethical problems such as adverse selection (i.e., due to information asymmetry) in traditional agricultural insurance [20], recent research has mainly focused on weather index insurance [21,22]. However, insurance is mostly used for catastrophic events, whereas derivatives provide a more flexible risk management tool for non-catastrophic weather risks [23,24]. Gao et al [25] found that using options as a hedging strategy can help retailers improve their expected profits.…”

Section: Literature Reviewmentioning

confidence: 99%

An Actuarial Pricing Method for Air Quality Index Options

Liu

Zhao

Wang

et al. 2019

IJERPH

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Poor air quality has a negative impact on social life and economic production activities. Using financial derivatives to hedge risks is one of the important methods. Air quality index (AQI) options are designed to help enterprises cope with the operational risk caused by air pollution. First, the expanded Ornstein–Uhlenbeck model is established using an autoregressive-generalized autoregressive conditional heteroscedasticity (AR-GARCH) method to predict AQI for a city. Next, the average AQI is constructed to be as the underlying index for the AQI options. We then priced AQI options using an actuarial method with an Esscher transform. Meanwhile payoff functions for the options are established to let enterprises hedge against the operational risk caused by air pollution. Finally, we determined the price of AQI options using data from Xi’an, China, and the example of a tourism enterprise as a case study of how AQI options can be applied to hedge against operational risk for enterprises. With AQI options trading, enterprises can hedge against operational risks caused by air pollution. The applicability of AQI options is wide, it can also be applied in other cities or regions.

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Section: Literature Reviewmentioning

confidence: 99%

An Actuarial Pricing Method for Air Quality Index Options

Liu

Zhao

Wang

et al. 2019

IJERPH

View full text Add to dashboard Cite

show abstract

“…Data for the study was collected from all temperature derivatives and temperature data of the corresponding fortyseven cities in CME. According to CME and [8], we tidy up the cities, which introduced temperature derivatives in CME. Table 1 shows the forty-seven cities with traded temperature derivatives in CME and Table 2 shows the types of temperature derivatives that every city used.…”

Section: Datamentioning

confidence: 99%

“…According to CME, there are many types of weather derivatives including but not limited to temperature derivatives, hurricane derivatives, frost derivatives, and snowfall derivatives among others. Weather derivatives have a strong regional feature and its applicability could be context specific [7,8]. For example, weather derivatives in a city may not be suitable for other cities.…”

Section: Introductionmentioning

confidence: 99%