Risk Neutral Pricing of Weather Derivatives

In this video, we finally use the risk-neutral pricing methodology for valuation of our temperature options in python. In this online tutorial series dedicated to weather derivatives we have estimated the parameters of our modified mean-reverting Ornstein-Uhlenbeck process which defines our Temperature dynamics, and have now implemented different models for our time varying volatility. Now we move on to calculating option prices using both Monte Carlo simulation method under the risk neutral probability measure and an alternative black scholes like approximation for winter seasons!

Online written tutorial: https://quantpy.com.au/weather-deriva...

In this series we take a deep dive into a type of exotic financial products weather derivatives. Weather derivatives are financial instruments that can be used to reduce risk associated with adverse weather conditions like temperature, rainfall, frost, snow, and wind speeds.

Historical Data, Weather Observations for Sydney, Australia – Observatory Hill: http://www.bom.gov.au/climate/data/st...

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