Weather derivatives market: The Italian case

The purpose of this article is to analyse the weather derivatives market and to ascertain if and to what extent a weather market has developed in Italy. The first part of the article provides a general introduction to the weather derivatives market and to weather contracts. This is followed by a description of the most common models used to price weather derivatives. The third and the fourth sections contain the simulation of the pricing of a weather call. In the third section meteorological data are analysed, while in the fourth the process used to price this contract is explained and the results obtained are reported. An analysis of European and Italian weather derivatives markets is given in section five, with some conclusions being drawn in the final section. © EuroJournals Publishing, Inc. 2012.