Pricing Research Of Weather Derivatives Products Based On Time Series Models

The weather changes increasingly affect the current economic life, how to avoid the weather risk has become a worldwide concern. The weather risk refers to the risk due to weather changes on agriculture, energy industry and construction industry losses, it is generally divided into two types:catastrophic and general. This paper is aimed at the general weather risk to discuss. General weather risk refers to weather index due to temperature, humidity, precipitation and other common changes, resulting in the loss to the enterprise, and even lead to business crisis risk events. Characteristics of this kind of weather risk is random, the number of, so extensive influence, spread to many market participants, such as energy industry, construction industry, tourism, transportation, manufacturing, banking and insurance industries.The continuous development of the scientific and technological level has been able to let us use advanced science and technology level to solve many problems. However, so far the weather predictions are difficult to achieve 100% accurate, let alone to control the weather changeable, which also resulted in the industry many enterprises are inevitable because of the changeable weather and uncontrollable formed a huge property losses. The United States a weather report showed the weather, as a major economic impact factor, affecting nearly 80% of American factories and enterprises of the profit and loss situation, a more direct impact on the 40% of the U.S. economy.It can be seen that the changes in the weather has seriously affected the survival and development of the enterprises. Changes in the weather is changeable and uncontrollable, so if in accordance with the weather to analyze the growth and harvest of crops, energy development and transport, corporate profits and losses, the effect is not satisfactory. But if we change a way of thinking, the direct use of the weather itself to do business, earn a profit by predicting the weather changes, so you can make up due to adverse changes in the weather industry losses to a certain extent. Weather derivatives emerges as the times require.Weather derivatives are also a variety of financial derivatives, the current weather derivatives have weather futures, weather options and weather swaps. Weather derivatives are based on the actual results of weather changes, and the holders of weather derivatives can be traded only for speculation. In the insurance market, an insurance contract can only correspond to a policyholder, but in the weather derivatives market, a contract can weather the corresponding two traders, as long as they are for the future to determine the risk of different.With the deepening and development of the financial markets, financial products increasingly rich, various types of derivative products can be traded, and thus the breeding development of weather derivatives. The characteristics of the weather derivatives make it into the sight of people and become an important means of risk management. Traders can avoid enterprises will suffer because of the weather risk and weather derivatives, can also be in order to gain some benefit through the process in weather derivatives trading.An empirical study of the elaborated on the basis of the background and significance of the topic introduced the concept of weather derivatives and production and the development, analysis and comparison of weather forecasts several modeling methods and weather derivatives pricing theory. Finally, the time series method is used to fit the data analysis, the article in the fourth chapter and the fifth chapter gives the weather derivatives pricing, fully demonstrates the time series method in weather derivatives pricing theory and practical significance.This paper is divided into six parts:The first part is the background and the significance of the topic; according to reviewing the historic research and achievements at home and abroad in the field of the weather derivatives pricing.The second part introduces the theoretical knowledge of the weather futures, weather options and the time series method. The third part mainly analysis the impact of weather derivatives pricing factors, combined with China’s reality, this paper expounds the necessity and feasibility of the development of weather derivatives, and design a weather futures contracts with China’s actual such as the factors of the underlying index, standard city, contract specifications and transaction mode of weather derivatives.The fourth part is to test if the time series model can exactly predict the temperature data in the future.The fifth part uses the data predicted by the time series model combined with Monte Carlo method to price the weather futures and the weather options.The sixth part introduces the conclusion and its enlightenment of this paper.