Challenging the Oldest Risk on Earth

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Focusing on the pricing of temperature-related weather derivatives, this research utilizes historical weather data to create distributional forecasts for ten locations in Germany. It addresses the non-normality of weather surprises by bootstrapping error terms from the empirical distribution. The study also delves into the explicit pricing dynamics of the proposed model and includes a discussion on indifference pricing, offering a comprehensive approach to understanding weather derivatives independent of location and payoff structure.