This paper focuses on weather derivatives as efficient risk management instruments and proposes a more advanced approach for their pricing. An “hybrid” contract is introduced, combining insurance properties, specifically tailored for the region under study and introducing Value-at-Risk (VaR) and Expected Shortfall (ES) as appropriate measures for the strike price. The numerical results show that VaR and ES are both efficient ways for managing the so-called Tail Risk; further, being ES more conservative than VaR and due to its subadditivity property, it can be seen that seasonal contracts are generally better off than monthly contracts in reducing global risk.

Stefani, S., Kutrolli, G., Moretto, E., Kulakov, S. (2020). Managing meteorological risk through expected shortfall. RISKS, 8(4), 1-23 [10.3390/risks8040118].

Managing meteorological risk through expected shortfall

Stefani S.;Kutrolli G.;Moretto E.;
2020

Abstract

This paper focuses on weather derivatives as efficient risk management instruments and proposes a more advanced approach for their pricing. An “hybrid” contract is introduced, combining insurance properties, specifically tailored for the region under study and introducing Value-at-Risk (VaR) and Expected Shortfall (ES) as appropriate measures for the strike price. The numerical results show that VaR and ES are both efficient ways for managing the so-called Tail Risk; further, being ES more conservative than VaR and due to its subadditivity property, it can be seen that seasonal contracts are generally better off than monthly contracts in reducing global risk.
Articolo in rivista - Articolo scientifico
Climate change; Expected Shortfall; Portfolio diversification; Risk hedging; Temperature; Value-at-Risk;
English
1
23
23
Stefani, S., Kutrolli, G., Moretto, E., Kulakov, S. (2020). Managing meteorological risk through expected shortfall. RISKS, 8(4), 1-23 [10.3390/risks8040118].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10281/302597
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