Skip to main content
placeholder image

A stochastic harmonic oscillator temperature model for the valuation of weather derivatives

Journal Article


Abstract


  • Stochastic processes are employed in this paper to capture the evolution of daily mean temperatures, with the goal of pricing temperature-based weather options. A stochastic harmonic oscillator model is proposed for the temperature dynamics and results of numerical simulations and parameter estimation are presented. The temperature model is used to price a one-month call option and a sensitivity analysis is undertaken to examine how call option prices are affected when the model parameters are varied.

Publication Date


  • 2021

Citation


  • Giorgini, A., Mamon, R. S., & Rodrigo, M. R. (2021). A stochastic harmonic oscillator temperature model for the valuation of weather derivatives. Mathematics, 9(22). doi:10.3390/math9222890

Scopus Eid


  • 2-s2.0-85119602893

Web Of Science Accession Number


Volume


  • 9

Issue


  • 22

Place Of Publication


Abstract


  • Stochastic processes are employed in this paper to capture the evolution of daily mean temperatures, with the goal of pricing temperature-based weather options. A stochastic harmonic oscillator model is proposed for the temperature dynamics and results of numerical simulations and parameter estimation are presented. The temperature model is used to price a one-month call option and a sensitivity analysis is undertaken to examine how call option prices are affected when the model parameters are varied.

Publication Date


  • 2021

Citation


  • Giorgini, A., Mamon, R. S., & Rodrigo, M. R. (2021). A stochastic harmonic oscillator temperature model for the valuation of weather derivatives. Mathematics, 9(22). doi:10.3390/math9222890

Scopus Eid


  • 2-s2.0-85119602893

Web Of Science Accession Number


Volume


  • 9

Issue


  • 22

Place Of Publication