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.
2020
https://www.mdpi.com/2227-9091/8/4/118
climate change; temperature; risk hedging; Value-at-Risk; Expected Shortfall; portfolio diversification
Stefani, Silvana; Kutrolli, Gleda; Moretto, Enrico; Kulakov, Sergei
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11383/2101064
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