On the temperature derivative market, modeling temperature volatility is an important issue for pricing and hedging. In … order to apply pricing tools of financial mathematics, one needs to isolate a Gaussian risk factor. A conventional model for … Gaussian variable appears. Earlier work investigated this temperature risk in different locations and showed that neither …

a production economy featuring long-run productivity and temperature volatility risk. In the model temperature …

This paper is concerned with managing risk exposure to temperature using weather derivatives. We consider hedging … temperature risk using so-called HDD- and CDD-index futures, which are instruments written on temperatures in specific locations …

integrated to valuate commodity derivatives. This incorporation can be done in addition to usual factors: market prices of risk …