A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather Derivatives
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 estimati...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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MDPI AG
2021-11-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/9/22/2890 |
| _version_ | 1797509548834029568 |
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| author | Alessio Giorgini Rogemar S. Mamon Marianito R. Rodrigo |
| author_facet | Alessio Giorgini Rogemar S. Mamon Marianito R. Rodrigo |
| author_sort | Alessio Giorgini |
| collection | DOAJ |
| description | 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. |
| first_indexed | 2024-03-10T05:19:19Z |
| format | Article |
| id | doaj.art-f7403f2853bf444ba3c2f96fb46ae694 |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-10T05:19:19Z |
| publishDate | 2021-11-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-f7403f2853bf444ba3c2f96fb46ae6942023-11-23T00:14:37ZengMDPI AGMathematics2227-73902021-11-01922289010.3390/math9222890A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather DerivativesAlessio Giorgini0Rogemar S. Mamon1Marianito R. Rodrigo2Chief Risk Officer Department, FinecoBank, 20131 Milan, ItalyDepartment of Statistical and Actuarial Sciences, University of Western Ontario, London, ON N6A 5B7, CanadaSchool of Mathematics and Applied Statistics, University of Wollongong, Wollongong, NSW 2522, AustraliaStochastic 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.https://www.mdpi.com/2227-7390/9/22/2890weather derivativesstochastic modelstemperatureharmonic oscillatorparameter estimation |
| spellingShingle | Alessio Giorgini Rogemar S. Mamon Marianito R. Rodrigo A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather Derivatives Mathematics weather derivatives stochastic models temperature harmonic oscillator parameter estimation |
| title | A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather Derivatives |
| title_full | A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather Derivatives |
| title_fullStr | A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather Derivatives |
| title_full_unstemmed | A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather Derivatives |
| title_short | A Stochastic Harmonic Oscillator Temperature Model for the Valuation of Weather Derivatives |
| title_sort | stochastic harmonic oscillator temperature model for the valuation of weather derivatives |
| topic | weather derivatives stochastic models temperature harmonic oscillator parameter estimation |
| url | https://www.mdpi.com/2227-7390/9/22/2890 |
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