Wind Derivatives: Modeling and Pricing

Alexandridis, Antonis and Zapranis, Achilleas (2013) Wind Derivatives: Modeling and Pricing. Computational Economics, 41 (3). pp. 299-326. ISSN 0927-7099. (The full text of this publication is not available from this repository)

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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: 09 Apr 2014 12:51
Resource URI: http://kar.kent.ac.uk/id/eprint/32017 (The current URI for this page, for reference purposes)
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