Risk Management

, Volume 21, Issue 4, pp 265–291 | Cite as

Modeling and pricing of space weather derivatives

  • Birgit Lemmerer
  • Stephan UngerEmail author
Original Article


This article proposes a pricing model for space weather derivatives with payout depending on solar activity. By measuring the disturbance of the Earth’s magnetosphere, it is possible to price space weather derivatives which trigger a payoff if a certain level of energization is reached. Since energetic particles emitted by the Sun are a non-tradeable quantity, unique prices of contracts in an incomplete market are obtained using inverse transformation sampling as well as the market price of risk. We find a step-wise decline of option prices with increasing barriers of Kp-index values, a dependence of the option prices on the sunspot cycle, as well as reduced sensitivity of longer-dated maturities for higher Kp-index values.


Space weather Geomagnetic storms Geomagnetic indices Space weather derivative Pricing Hedging Inverse transformation sampling 


Compliance with ethical standards

Conflicts of interest

On behalf of all authors, the corresponding author states that there is no conflict of interest.


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Copyright information

© Springer Nature Limited 2019

Authors and Affiliations

  1. 1.Institute of Physics, IGAMUniversity of GrazGrazAustria
  2. 2.Department of Economics & BusinessSaint Anselm CollegeManchesterUSA

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