Weak vs. Strong Correlations: Bid-Ask Spreads for Weather-Contingent Options
arXiv:cond-mat/0305417
Abstract
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.
5 pages, 2 figures. Key words: Monte Carlo Methods, Weather Derivatives, Commodity Markets