TY - JOUR
T1 - Option Pricing of Weather Derivatives for Seoul
AU - Jiwoon Kim, Dongwoo Sheen & Sungwon Shin
JO - East Asian Journal on Applied Mathematics
VL - 4
SP - 309
EP - 325
PY - 2018
DA - 2018/02
SN - 2
DO - http://doi.org/10.4208/eajam.171012.061112a
UR - https://global-sci.org/intro/article_detail/eajam/10879.html
KW - Weather derivatives, market price of risk, HDD, CDD, CAT.
AB - <p style="text-align: justify;">This article analyses temperature data for Seoul based on a well defined
daily average temperature (DAT) derived from records dating from 1954 to 2009, and
considers related weather derivatives using a previous methodology. The temperature
data exhibit some quite distinctive features, compared to other cities that have been
considered before. Thus Seoul has: (i) four clear seasons; (ii) a significant seasonal
range, with high temperature and humidity in the summer but low temperature and
very dry weather in winter; and (iii) cycles of three cold days and four warmer days in
winter. Due to these characteristics, seasonal variance and oscillation in Seoul is more
apparent in winter and less evident in summer than in the other cities. We construct
a deterministic model for the average temperature and then simulate future weather
patterns, before pricing various weather derivative options and calculating the market
price of risk (MPR).</p>