We describe two methods for the calculation of horizon value at risk for single weather derivative contracts. Both methods are based on the volatility of the stochastic process for the expected index. The simpler of the two methods involves a linearisation, and is only appropriate for short...

We discuss how weather forecasts can be used in the pricing of weather derivatives and derive results for the most important types of weather index and contract. We show that calculating the expected payoff of linear contracts on linear indices requires only forecasts of the mean temperature...

It has been shown in earlier work that long memory can be detected in multidecadal time series of daily surface air temperature measured at individual weather stations. Here, we present a multivariate stochastic model capable of capturing both the long memory at each station, and the lagged...

Weather derivatives are financial contracts that allow entities to hedge themselves against the adverse impacts of fluctuations in the weather. The pricing of such contracts is based on a combination of actuarial and arbitrage methods. Risk management of portfolios of weather derivatives centres...

The pricing of weather derivatives motivates the need to build accurate statistical models of daily temperature variability. Current published models are shown to be inaccurate for locations that show strong seasonality in the probability distribution and autocorrelation structure of temperature...

Predictions of future weather conditions play an important role in pricing weather derivatives. In many instances, the dates for which we require predictions are well beyond the point where physical forecasts have any skill. Under these circumstances, predictions are generated from statistical...