Alexandridis, A. and Zapranis, A. (2013) Wind Derivatives: Modeling and Pricing. Computational Economics, 41 (3). pp. 299-326. ISSN 0927-7099.
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| Official URL http://dx.doi.org/10.1007/s10614-012-9350-y |
Abstract
Wind is considered to be a free, renewable and environmentally friendly source of energy. However, wind farms are exposed to excessive weather risk since the power production depends on the wind speed, the wind direction and the wind duration. This risk can be successfully hedged using a financial instrument called weather derivatives. In this study the dynamics of the wind generating process are modeled using a non-parametric non-linear wavelet network. Our model is validated in New York. The proposed methodology is compared against alternative methods, proposed in prior studies. Our results indicate that wavelet networks can model the wind process very well and consequently they constitute an accurate and efficient tool for wind derivatives pricing. Finally, we provide the pricing equations for wind futures written on two indices, the cumulative average wind speed index and the Nordix wind speed index.
| Item Type: | Article |
|---|---|
| Uncontrolled keywords: | Wind derivatives; Weather derivatives; Pricing; Forecasting; Wavelet networks |
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculties > Science Technology and Medical Studies > School of Mathematics Statistics and Actuarial Science > Actuarial Science |
| Depositing User: | Antonis Alexandridis |
| Date Deposited: | 29 Oct 2012 13:36 |
| Last Modified: | 20 Feb 2013 13:22 |
| Resource URI: | http://kar.kent.ac.uk/id/eprint/32017 (The current URI for this page, for reference purposes) |
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