Modeling And Valuing Rainfall Index Derivatives Of Zhengzhou

Weather derivatives are a kind of important financial derivatives,Rainfall derivatives are used to hedge the risk of bad weather by agricultural industry,and are as an important investment approaches by investor.The price of rainfall derivatives is sensitive to the predictions of rainfall index.The precipitation series are quite complex,because the volatility of rainfall is larger,and there are a lot of zero in the precipitation series.Therefore,it is difficult to study the rainfall.This paper introduces a first-order Markov model,high-order Markov model,and the rule of selecting Markov model.Using the Markov model to model the daily rainfall series in Zhengzhou,the results show that the two order Markov model is suitable for the daily rainfall series in Zhengzhou.But the two-order Markov model can not extract the seasonal feature.Therefore,the improvement of the algorithm is provided.The results show that the improved algorithm can extract the seasonal feature of rainfall series.According to the statistical characteristics of daily rainfall of Zhengzhou City,this paper classify the samples of daily rainfall by the time,and then estimate the parameters of the Gamma distribution.Combined with the simulation of Zhengzhou daily rainfall binary sequence and the calculation results of gamma distribution,we simulate the daily rainfall sequences in Zhengzhou.The results show that the improved algorithm can well simulate the rainfall process.Finally,this paper introduces the indifference pricing model,and gives the formulas of the expected return of rainfall index futures and the option premium of rainfall index option contracts,then taking Zhengzhou as an example we calculate the expected return of a rainfall index futures contracts and the option premium of the rainfall index option contracts.