6533b834fe1ef96bd129cb0e
RESEARCH PRODUCT
Hedging of Spatial Temperature Risk with Market-Traded Futures
Jürgen PotthoffFred Espen BenthAndrea Barthsubject
Mathematical optimizationStochastic differential equationWork (thermodynamics)Random fieldApplied MathematicsStochastic simulationEconometricsVariance (accounting)Spatial dependenceHedge (finance)Futures contractFinanceMathematicsdescription
The main objective of this work is to construct optimal temperature futures from available market-traded contracts to hedge spatial risk. Temperature dynamics are modelled by a stochastic differential equation with spatial dependence. Optimal positions in market-traded futures minimizing the variance are calculated. Examples with numerical simulations based on a fast algorithm for the generation of random fields are presented.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2011-02-17 | Applied Mathematical Finance |