Using Meteorological Forecasts for Improving Weather Derivative Pricing
Accurate weather forecasts can significantly improve both weather derivative pricing and weather risk management. Forecasters employ different techniques in developing weather forecasts. Common approaches include the numerical weather prediction methods, ensemble forecasts, and probabilistic forecasts. In this chapter, the most common approaches in producing meteorological forecasts are presented. Moreover, approaches for utilizing these forecasts in order to improve weather derivative pricing and weather risk management are presented.
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