PT  - JOURNAL ARTICLE
AU  - Melanie Cao
AU  - Anlong Li
AU  - Jason Z Wei
TI  - Precipitation Modeling and Contract Valuation
AID  - 10.3905/jai.2004.439656
DP  - 2004 Sep 30
TA  - The Journal of Alternative Investments
PG  - 93--99
VI  - 7
IP  - 2
4099  - https://pm-research.com/content/7/2/93.short
4100  - https://pm-research.com/content/7/2/93.full
AB  - This article has two objectives. First, it describes the market for precipitation derivatives and provides examples of applications of such contracts. Second, it proposes, estimates, and compares several models for precipitation. Based on the data for Chicago Midway Airport (1950–2003), we find that a mixture of exponentials and kernel density provide a better fit than a gamma distribution. A valuation example is also presented.