arrow
Volume 2, Issue 4
Option Pricing of Weather Derivatives for Seoul

Jiwoon Kim, Dongwoo Sheen & Sungwon Shin

East Asian J. Appl. Math., 2 (2012), pp. 309-325.

Published online: 2018-02

Export citation
  • Abstract

This article analyses temperature data for Seoul based on a well defined daily average temperature (DAT) derived from records dating from 1954 to 2009, and considers related weather derivatives using a previous methodology. The temperature data exhibit some quite distinctive features, compared to other cities that have been considered before. Thus Seoul has: (i) four clear seasons; (ii) a significant seasonal range, with high temperature and humidity in the summer but low temperature and very dry weather in winter; and (iii) cycles of three cold days and four warmer days in winter. Due to these characteristics, seasonal variance and oscillation in Seoul is more apparent in winter and less evident in summer than in the other cities. We construct a deterministic model for the average temperature and then simulate future weather patterns, before pricing various weather derivative options and calculating the market price of risk (MPR).

  • AMS Subject Headings

91G20, 60H15, 60J65

  • Copyright

COPYRIGHT: © Global Science Press

  • Email address
  • BibTex
  • RIS
  • TXT
@Article{EAJAM-2-309, author = {}, title = {Option Pricing of Weather Derivatives for Seoul}, journal = {East Asian Journal on Applied Mathematics}, year = {2018}, volume = {2}, number = {4}, pages = {309--325}, abstract = {

This article analyses temperature data for Seoul based on a well defined daily average temperature (DAT) derived from records dating from 1954 to 2009, and considers related weather derivatives using a previous methodology. The temperature data exhibit some quite distinctive features, compared to other cities that have been considered before. Thus Seoul has: (i) four clear seasons; (ii) a significant seasonal range, with high temperature and humidity in the summer but low temperature and very dry weather in winter; and (iii) cycles of three cold days and four warmer days in winter. Due to these characteristics, seasonal variance and oscillation in Seoul is more apparent in winter and less evident in summer than in the other cities. We construct a deterministic model for the average temperature and then simulate future weather patterns, before pricing various weather derivative options and calculating the market price of risk (MPR).

}, issn = {2079-7370}, doi = {https://doi.org/10.4208/eajam.171012.061112a}, url = {http://global-sci.org/intro/article_detail/eajam/10879.html} }
TY - JOUR T1 - Option Pricing of Weather Derivatives for Seoul JO - East Asian Journal on Applied Mathematics VL - 4 SP - 309 EP - 325 PY - 2018 DA - 2018/02 SN - 2 DO - http://doi.org/10.4208/eajam.171012.061112a UR - https://global-sci.org/intro/article_detail/eajam/10879.html KW - Weather derivatives, market price of risk, HDD, CDD, CAT. AB -

This article analyses temperature data for Seoul based on a well defined daily average temperature (DAT) derived from records dating from 1954 to 2009, and considers related weather derivatives using a previous methodology. The temperature data exhibit some quite distinctive features, compared to other cities that have been considered before. Thus Seoul has: (i) four clear seasons; (ii) a significant seasonal range, with high temperature and humidity in the summer but low temperature and very dry weather in winter; and (iii) cycles of three cold days and four warmer days in winter. Due to these characteristics, seasonal variance and oscillation in Seoul is more apparent in winter and less evident in summer than in the other cities. We construct a deterministic model for the average temperature and then simulate future weather patterns, before pricing various weather derivative options and calculating the market price of risk (MPR).

Jiwoon Kim, Dongwoo Sheen & Sungwon Shin. (1970). Option Pricing of Weather Derivatives for Seoul. East Asian Journal on Applied Mathematics. 2 (4). 309-325. doi:10.4208/eajam.171012.061112a
Copy to clipboard
The citation has been copied to your clipboard