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
Citation
CHANG, Carolyn W; CHANG, SK Jack; and LIM, Kian Guan.
Climate risk management: The case of forecasting tropical cyclones. (2010). Research Collection Lee Kong Chian School Of Business.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/5226
Creative Commons 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