6533b821fe1ef96bd127b86d

RESEARCH PRODUCT

A critical view on temperature modelling for application in weather derivatives markets

Fred Espen BenthFred Espen BenthJūratė ŠAltytė BenthJūratė ŠAltytė Benth

subject

Economics and EconometricsHeteroscedasticityStochastic modellingAutoregressive conditional heteroskedasticityVariance (accounting)Seasonalitymedicine.diseaseGeneral EnergyAutoregressive modelDerivatives marketmedicineEconometricsTime seriesMathematics

description

In this paper we present a stochastic model for daily average temperature. The model contains seasonality, a low-order autoregressive component and a variance describing the heteroskedastic residuals. The model is estimated on daily average temperature records from Stockholm (Sweden). By comparing the proposed model with the popular model of Campbell and Diebold (2005), we point out some important issues to be addressed when modelling the temperature for application in weather derivatives market.

yearjournalcountryeditionlanguage
2012-03-01Energy Economics
https://doi.org/10.1016/j.eneco.2011.09.012