✦ LIBER ✦
No chills or burns from temperature surprises: An empirical analysis of the weather derivatives market
✍ Scribed by Ludwig Chincarini
- Publisher
- John Wiley and Sons
- Year
- 2010
- Tongue
- English
- Weight
- 211 KB
- Volume
- 31
- Category
- Article
- ISSN
- 0270-7314
No coin nor oath required. For personal study only.
✦ Synopsis
This article examines the efficiency of the weather futures market traded on the CME in both HDD and CDD futures contracts in 18 cities across the United States. Efficiency is examined in three ways. First, by comparing the market's implied forecasts for the weather against other forecasts. Second, by looking at whether market's overreact or under-react to temperature surprises. Third, by looking at weather derivative patterns across cities. We find that generally the market seems very efficient despite its lack of liquidity. We also find risk premia that seem to vary across cities and over time.