Publication Type

Working Paper

Publication Date

3-2010

Abstract

Global warming has induced an increasing number of deadly tropical cyclones with a continuing trend. Developing high-functional climate risk management tools in forecasting, catastrophe modeling, pricing and hedging is thus crucial. By using transactional price changes of traded hurricane derivatives as the predictor in a doubly-binomial pricing framework, we develop a dynamic market-consensus hurricane forecasting model. Our model can forecast when and how a hurricane will make landfall, and how these forecasts will update themselves upon trading arrival.

Keywords

Tropical cyclones, Climate risk management, Forecasting, Doubly-binomial Tree, Stochastic intensity arrival, Random time steps, Option pricing

Discipline

Finance and Financial Management

Research Areas

Finance

Identifier

10.2139/ssrn.1570625

Publisher

SSRN

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.2139/ssrn.1570625

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