A Margrabe or exchange option is an option to exchange one asset for another. In a general stochastic volatility framework, by taking the second asset as a numeraire, we derive pricing as well as second order approximative pricing formulae for Margrabe options. This can only be done under...

We propose an approach for pricing and hedging weather derivatives based on including forward looking information about the temperature available to the market. This is achieved by modeling temperature forecasts by a finite dimensional factor model. Temperature dynamics are then inferred in the...