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Managing Meteorological Risk through Expected Shortfall

by 1,†, 2,†, 3,*,† and 4,†
Dipartimento di Discipline Matematiche, Finanza Matematica ed Econometria, Università Cattolica del Sacro Cuore, via Necchi, 9, 20123 Milano, Italy
Dipartimento di Statistica e Metodi Quantitativi, Università di Milano-Bicocca, Piazza dell’Ateneo Nuovo, 1, 20126 Milano, Italy
Dipartimento di Economia, Università degli Studi dell’Insubria, via Monte Generoso 71, 21100 Varese, Italy
House of Energy Markets and Finance, University of Duisburg-Essen, Berliner Platz 6-8, 45127 Duisburg, Germany
Author to whom correspondence should be addressed.
These authors contributed equally to this work.
Risks 2020, 8(4), 118;
Received: 30 June 2020 / Revised: 23 October 2020 / Accepted: 2 November 2020 / Published: 10 November 2020
(This article belongs to the Special Issue Stochastic Modeling and Pricing in Energy Markets)
This paper focuses on weather derivatives as efficient risk management instruments and proposes a more advanced approach for their pricing. An “hybrid” contract is introduced, combining insurance properties, specifically tailored for the region under study and introducing Value-at-Risk (VaR) and Expected Shortfall (ES) as appropriate measures for the strike price. The numerical results show that VaR and ES are both efficient ways for managing the so-called Tail Risk; further, being ES more conservative than VaR and due to its subadditivity property, it can be seen that seasonal contracts are generally better off than monthly contracts in reducing global risk. View Full-Text
Keywords: climate change; temperature; risk hedging; Value-at-Risk; Expected Shortfall; portfolio diversification climate change; temperature; risk hedging; Value-at-Risk; Expected Shortfall; portfolio diversification
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MDPI and ACS Style

Stefani, S.; Kutrolli, G.; Moretto, E.; Kulakov, S. Managing Meteorological Risk through Expected Shortfall. Risks 2020, 8, 118.

AMA Style

Stefani S, Kutrolli G, Moretto E, Kulakov S. Managing Meteorological Risk through Expected Shortfall. Risks. 2020; 8(4):118.

Chicago/Turabian Style

Stefani, Silvana, Gleda Kutrolli, Enrico Moretto, and Sergei Kulakov. 2020. "Managing Meteorological Risk through Expected Shortfall" Risks 8, no. 4: 118.

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