Abstract

GONZALEZ SANCHEZ, Mariano  and  NAVE PINEDA, Juan M.. Weather derivative assessment using temperature stochastic modeling at Eldorado international airport in Bogota. Cuad. Adm. [online]. 2010, vol.23, n.41, pp.261-283. ISSN 0120-3592.

The weather and its effects have been two of the main fields of scientific discussion in recent years. In economics, that has meant greater analysis of the risks that the weather generates on the economy, in general, and on business activities, in particular. Therefore, financial derivative products have been developed, enabling economic agents to protect themselves against such risks. Some of the most customary weather derivatives include an underlying factor that is a city’s temperature measured at the airport. In that context, this article analyzes how such temperature derivatives can be applied to Eldorado International Airport. To do so, an Ornstein-Uhlenbeck mean reversion model is adjusted to the observed temperature, its validity is verified using simulation techniques, and diverse derivative products are assessed.

Keywords : Weather derivatives; stochastic process; mean reversion; seasonality.

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