Weak vs. Strong Correlations: Bid-Ask Spreads for Weather-Contingent Options

Details Weak vs. Strong Correlations: Bid-Ask Spreads for Weather-Contingent Options Weak vs. Strong Correlations: Bid-Ask Spreads for Weather-Contingent Options

2003-05-18

arxiv.org/abs/cond-mat/0305417v1

Physics

Condensed Matter

Disordered Systems and Neural Networks

5 pages, 2 figures. Key words: Monte Carlo Methods, Weather Derivatives, Commodity Markets

Scientific paper

We price weather-contingent options by use of Monte Carlo simulations. After
calibrating the models to fit quoted prices, we analyze bid-ask spreads in
terms of correlations across markets. Results are presented for a
double-trigger Weather vs. Natural Gas call option.

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