An Empirical Analysis Of Pricing Weather Derivatives

At the beginning of this year,a snowstorm occurred in the south of China,which caused great damage.The weak weather risk management in China was exposed by this catastrophe.Now many developed countries such as U.S.A.and Britain take advantage of weather derivatives to protect themselves against weather risk.Weather derivatives are important for weather risk management tools.They are effective not only to developed countries but also to China.Because the Chinese capital market is still immature,there are many problems in introducing weather derivatives into China.The important one of them is how to make a fair price.Weather derivatives are different from financial derivatives.Applying Black-Scholes modeling to weather derivatives is hazardous.So we must find other ways.In this dissertation we will use Monte Carlo simulations to price the derivatives whose underlying asset is the temperature in Shanghai.