Energy, variability and weather finance engineering

Abstract

Weather derivatives comprise efficient financial tools for managing hydrometeorological uncertainties in various markets. With ~46% utilization by the energy industry, weather derivatives are projected to constitute a critical element for dealing with risks of low and medium impacts –contrary to standard insurance contracts that deal with extreme events. In this context, we design and engineer -via Monte Carlo pricing- a weather derivative for a remote island in Greece -powered by an autonomous diesel-fuelled generator- resembling to a standard call option contract to test the benefits for both the island's public administration and a bank -as the transaction's counterparty.