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The Weather Derivatives Market Read chapter Read first chapter

2013 | OriginalPaper | Chapter

10. Precipitation Derivatives

Authors : Antonis K. Alexandridis, Achilleas D. Zapranis

Published in: Weather Derivatives

Publisher: Springer New York

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Abstract

Rainfall is considered to be one of the major factors affecting the yield of farmers and the production of hydroelectric energy generators. On the other hand snowfall affects the revenues of ski industry. Rainfall and snowfall can be accounted as a form of precipitation. The aim of this chapter is to analyze the dynamics of the precipitation process and present a modeling procedure for precipitation. Precipitation modeling is separated in two components. The first step is to model the frequency process of precipitation and the second to model the magnitude process. In this chapter the dynamics of the precipitation generating process are modeled using a Markov chain model that define the frequency process and with a gamma distribution for the magnitude process. Our model is validated in Berlin, and the basis risk in the context of precipitation is also examined. Finally, we provide the pricing framework for rainfall futures.

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Footnotes
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Metadata
Title
Precipitation Derivatives
Authors
Antonis K. Alexandridis
Achilleas D. Zapranis
Copyright Year
2013
Publisher
Springer New York
Book
Weather Derivatives

Print ISBN: 978-1-4614-6070-1

Electronic ISBN: 978-1-4614-6071-8

Copyright Year: 2013

DOI
https://doi.org/10.1007/978-1-4614-6071-8_10