STATISTICAL MODELS FOR PRICING WEATHER DERIVATIVES FOR SOUTH AFRICAN COASTAL AREAS

Coastal areas are always an ideal place for different specific business activities which include the agricultural industry. This study reviews available statistical models for pricing weather derivatives with temperature as the underlying variable which will enable industries, businesses and other organizations in South African coastal areas like Durban, Cape Town and Port Elizabeth to protect themselves against losses due to fluctuation in the weather and thus hedge their risks. Historical South African weather data was used to test the models.