When extended to sovereign issuers, the Merton‐type structural model suggests a negative relationship between sovereign credit default swap (CDS) spreads and stock prices. In practice, capital structure arbitrage that exploits such relationships should foster the integration of CDS and the...

Purpose – The purpose of this paper is to examine empirically the basis risk and hedging efficiency of temperature‐indexed standardized weather derivatives in hedging weather risks in the US energy industry. Design/methodology/approach – Within the risk minimization framework, using power...

Purpose – The paper aims to examine theoretically valuation of weather derivatives and their hedging roles in corporate risk management. Design/methodology/approach – The paper introduces an extended financial market model in which the weather risk is included as an independent random...