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Climate Risk Management: Study and pricing of a weather derivative

Diakouma, Ghislaine
(2023)

Files

Diakouma_57051800_2023.pdf
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Details

Supervisors
Devolder, Pierre
Faculty
Faculté des sciences
Degree label
Master [120] en sciences actuarielles, à finalité spécialisée
Abstract
This paper discusses the importance of weather derivatives in climate risk management. It highlights the need for innovative tools to address the increasing challenges created by weather events. The paper introduced climate risk and focuses on the weather derivatives market. It introduces the characteristics of weather derivatives and compares them to those of traditional derivatives. Its main objective is to present a model to describe the dynamic of temperature data for pricing a cumulative average temperature (CAT) call option. The available pricing techniques are discussed, and the Ornstein-Uhlenbeck driven by Levy process is explored. The model is set on the temperature data of the Schiphol meteorological station. Climate effect is believed to be captured in the trend of the data. Hence a particular focus is given to the trend.