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Weak vs. Strong Correlations: Bid-Ask Spreads for Weather-Contingent Options

Rene' Carmona·Dario Villani
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Abstract

We price weather-contingent options by use of Monte Carlo simulations. After calibrating the models to fit quoted prices, we analyze bid-ask spreads in terms of correlations across markets. Results are presented for a double-trigger Weather vs. Natural Gas call option.

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Rene' Carmona, Dario Villani. 2003-05-18. Weak vs. Strong Correlations: Bid-Ask Spreads for Weather-Contingent Options. https://arxiv.org/abs/cond-mat/0305417

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