Weather Derivative Volatility Surface Estimation
AssigneeChicago Mercantile Exchange Inc.
InventorsMuhammed Hadi, Ketan Patel
Life of this patent
Estimating the term…
Abstract
Systems and methods are provided for determining the volatility of weather derivative option contracts. Volatility levels are initially determined with conventional methods. Unreliable volatility levels are then replaced with futures contracts volatility levels. If the futures contracts volatility levels are not available or appear unreliable, meteorological volatility levels are utilized. The data may be reduced to a three dimensional surface and used when determining margin account requirements.
Claims20
A method comprising:
- (a) determining at a processor volatility levels for weather derivative option contracts having a range of strike prices and a range of times to maturity using an option volatility model;
- (b) identifying at the processor any of the weather derivative option contract volatility levels that deviate from adjoining volatility levels corresponding to weather derivative option contracts by a predetermined threshold;
- (c) replacing the volatility levels identified in (b) with weather derivative futures contracts volatility levels for corresponding futures contracts;
- and
- (d) determining at a processor portfolio risk using at least one of the volatility levels.
A method comprising:
- (a) determining at a processor volatility levels for weather derivative contracts having a range of strike prices and a range of times to maturity using an option volatility model;
- (b) identifying at the processor any of the weather derivative option contract volatility levels that deviate from adjoining volatility levels corresponding to weather derivative option contracts by a predetermined threshold;
- (c) replacing the volatility levels identified in (b) with futures contracts volatility levels for corresponding futures contracts;
- and
- (d) calculating a margin account requirement using a portfolio risk management determination method and at least one of the volatility levels.
A non-transitory computer-readable storage medium containing computer-executable instructions that when executed cause a computer device to perform the steps comprising:
- (a) determining volatility levels for weather derivative contracts having a range of strike prices and a range of times to maturity using an option volatility model;
- (b) identifying weather derivative contract volatility levels that deviate from adjoining volatility levels corresponding to weather derivative option contracts by a predetermined threshold;
- (c) replacing the volatility levels identified in (b) with futures contracts volatility levels for corresponding futures contracts;
- and
- (d) determining portfolio risk using at least one of the volatility levels.
Dependencies are inferred from the claim text.