Modeling Temperature and Pricing Weather Derivatives Based on Temperature

Table 1

One-year-ahead prediction and error values for HDDs.

City	Actual	The current model	Years	Error (%)	Campbell	Error (%)	Benth	Error (%)	HBA	Error (%)	Equation (24)	Error (%)
Ankara	6047	4980	5	−17.65	6203	2.58	5377	−11.08	5940	−1.77	6398	5.81
Beijing	5880	5705	5	−2.98	5571	−5.26	5039	−14.30	5319	−9.54	6218	5.75
Cairo	573	322	29	−43.81	746	30.20	353	−38.39	701	22.34	718	25.31
Chicago	5980	5814	15	−2.78	6098	1.97	5849	−2.19	6337	5.97	3560	−40.67
Dallas	2151	1777	34	−17.39	2202	2.37	1767	−17.85	2176	1.16	1118	−48.02
Istanbul	3607	2872	9	−20.38	3808	5.57	2972	−17.61	3485	−3.38	4520	25.31
LA	1441	1250	21	−13.26	1127	−21.79	1119	−22.35	1244	−13.67	1608	11.59
New York	4378	4391	7	0.30	4699	7.33	4516	3.15	4683	6.97	4949	13.04
Paris	3940	4988	6	26.60	5006	27.06	4190	6.35	4781	21.35	4902	24.42
Sydney	1277	1000	37	−21.70	1381	8.14	1002	−21.54	1343	5.17	1086	−14.96
Tokyo	2925	2648	8	−9.47	3238	10.70	2671	−8.68	764	−73.88	3309	13.13
Washington	3572	3758	34	5.21	3751	5.01	3724	4.26	3851	7.81	3749	4.96

Number of years of data included in estimations.