Betting on Mother Nature
Weather derivatives, climate risk, and actuarial modeling
Weather affects nearly every sector of the economy. A warmer winter can reduce energy demand, excessive rainfall can disrupt agriculture, and extreme temperatures can affect transportation, construction, and retail activity. Weather derivatives are financial instruments designed to help manage the economic consequences of weather fluctuations.
My interest in weather derivatives began during my doctoral studies in Actuarial Science and Risk Analytics at the University of Illinois Urbana-Champaign. I was drawn to the intersection of stochastic modeling, financial engineering, and climate-related risk.
My current research focuses on pricing weather derivatives under stochastic volatility and jump models. In particular, I study how temperature dynamics can be modeled and how numerical methods such as Monte Carlo simulation and Fast Fourier Transform methods can be used to value derivative contracts.
This interest led to a feature article published by the Actuarial Science and Risk Management program at the University of Illinois Urbana-Champaign.
Read the full ASRM article:
Betting on Mother Nature
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For readers interested in the practical side of weather risk management, I also conducted an expert interview on weather derivatives and market practice.