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 ecient 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 o than monthly contracts in reducing global risk.
Managing Meteorological Risk through Expected Shortfall
Enrico Moretto
Co-primo
Membro del Collaboration Group
;
2020-01-01
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 ecient 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 o than monthly contracts in reducing global risk.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.