Minimizing the impact of geographical basis risk on weather derivatives
نویسندگان
چکیده
Abstract In the last decade, index-based weather products (also called derivatives) have been gaining attention in climate resilience discussion. Weather derivatives are designed to help companies hedging against variability. These products, that can be market-traded or over-the-counter, compensate individuals based on a pre-defined index. Thus, pay-offs of derivative depend index and not, as with traditional types insurance, actual amount money lost due adverse weather. One major drawbacks may prevent catch is impact Geographical Basis Risk (GBR), deviation conditions at different locations. fact, when reference station not located immediate vicinity site interest effectiveness reduced. this paper, we contribute existing literature GBR by proposing an optimization method offering tailored solution, while same time keeping standardized instrument reference. Using historical record Italian temperatures, strikes for temperatures choice variables penalty function containing all other stations. Further, altitude latitude meteorological stations shown relevant predictors explain GBR. This interesting starting point design derivatives, since, from unique where “reference” priced, easily settled.
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ژورنال
عنوان ژورنال: Annals of Operations Research
سال: 2023
ISSN: ['1572-9338', '0254-5330']
DOI: https://doi.org/10.1007/s10479-023-05483-3